UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 0-17082
QLT Inc.
(Exact Name of Registrant as Specified in its Charter)
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British Columbia, Canada
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N/A |
(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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101 887 Great Northern Way, Vancouver, B.C., Canada
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V5T 4T5 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (604) 707-7000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Shares, without par value
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The Nasdaq Stock Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days. Yes þ
No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files. Yes o
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of
the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller Reporting Company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of June 30, 2009, the aggregate market value of the common shares held by
non-affiliates of the registrant (based on the last reported sale price of the common shares of
U.S. $2.12, as reported on the NASDAQ Stock Market) was approximately U.S. $115,795,095.
As of February 26, 2010 the registrant had 53,789,289 outstanding common shares.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Companys definitive proxy statement (to be filed pursuant to Regulation 14A
within 120 days after Registrants fiscal year end of December 31, 2009) for its annual meeting to
be held on May 20, 2010, are incorporated by reference in this Form 10-K in response to Part III,
Items 10, 11, 12, 13 and 14.
Note regarding references to QLT
Throughout this Annual Report on Form 10-K (this Report), the words we, us, our, the
Company and QLT refer to QLT Inc. and our wholly owned subsidiaries, QLT Plug Delivery, Inc.,
QLT Therapeutics, Inc., and QLT Ophthalmics, Inc., unless stated otherwise.
Note regarding Currency and Accounting Standards
In this Report all dollar amounts are in U.S. dollars, except where otherwise stated, and financial
reporting is made in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
We use the U.S. dollar as our reporting currency, while for the year ended December 31, 2009 the
Canadian dollar was the functional currency for the parent company, QLT Inc., and the U.S. dollar
was the functional currency for our U.S. subsidiaries. During the first quarter of 2010, the
functional currency of QLT Inc. was changed to the U.S. dollar as a result of the change in our
business related to the receipt of exclusive U.S. rights to the Visudyne patents from Novartis.
Note regarding Exchange Rates
The table below shows relevant exchange rates which approximate the noon buying rates in New York
City as reported by the Federal Reserve Bank of New York for cable transfers expressed in Canadian
dollars for the five most recent fiscal years of the Company.
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2009 |
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2008 |
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2007 |
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2006 |
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2005 |
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High |
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$ |
1.2995 |
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$ |
1.2971 |
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$ |
1.1852 |
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$ |
1.1726 |
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$ |
1.2703 |
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Low |
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1.0289 |
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0.9717 |
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0.9168 |
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1.0989 |
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1.1507 |
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Average |
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1.1412 |
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1.0660 |
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1.0734 |
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1.1340 |
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1.2115 |
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Period End |
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1.0461 |
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1.2240 |
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0.9881 |
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1.1652 |
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1.1656 |
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Note regarding Trademarks
The following words used in this Report are trademarks:
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Visudyne® is a registered trademark of Novartis AG. |
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Eligard® is a registered trademark of Sanofi-Aventis Corp. |
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Aczone® is a registered trademark of Allergan, Inc. |
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Lucentis® is a registered trademark of Genentech, Inc. |
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Avastin® is a registered trademark of Genentech, Inc. |
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Xalatan® is a registered trademark of Pfizer Health AB. |
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Patanol® is a registered trademark of Alcon Research, Ltd. |
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PatadayTM is a trademark of Alcon, Inc. |
2
QLT INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2009
Table of Contents
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3
PART I
Overview
QLT is a biotechnology company dedicated to the development and commercialization of innovative
therapies for the eye. We are currently focused on our commercial product, Visudyne®,
for the treatment of wet age related macular degeneration (wet AMD), and developing our
ophthalmic product candidates.
Over the last two years we have narrowed our focus to development and commercial efforts in the
field of ophthalmology. In 2008, we initiated a strategic corporate restructuring designed to
enhance shareholder value and focus our business on our ophthalmic assets. Under the strategic
corporate restructuring we disposed of all of our non-core assets, including Aczone®,
approved for the treatment of acne vulgaris, the Atrigel® sustained-release drug
delivery technology (except for certain rights retained by us), the Eligard® line of
products, approved for the treatment of prostate cancer (through the sale of all of the shares of
our U.S. subsidiary, QLT USA, Inc. (QLT USA)), and our land and building comprising our corporate
headquarters in Vancouver, B.C. We are now a biotechnology company focused on developing and
commercializing products for use in the field of ophthalmology.
Products, Revenues and Other Sources of Funds
We currently have one commercial product, Visudyne, which utilizes photodynamic therapy (PDT) to
treat the eye disease known as wet AMD, the leading cause of blindness in people over the age of 55
in North America and Europe. Visudyne is also used for the treatment of subfoveal choroidal
neovascularization (CNV) due to pathologic myopia, or severe near-sightedness, and presumed
ocular histoplasmosis. Visudyne was co-developed by QLT and Novartis Pharma AG of Switzerland
(Novartis) and is marketed and sold in over 80 countries worldwide.
On January 1, 2010 we received from Novartis the exclusive U.S. rights to the Visudyne patents to
sell and market Visudyne in the U.S. As a result, we have established a commercial presence in the
U.S., operating a direct marketing and sales force through our U.S. subsidiary, QLT Ophthalmics,
Inc., and have rights to all end-user revenue derived from Visudyne sales in the U.S. Novartis
continues to market and sell Visudyne outside the U.S. and will pay us a royalty on net sales of
the product. See the section entitled Visudyne Our Approved Product below.
Under the stock purchase agreement with TOLMAR Holding, Inc. (Tolmar), pursuant to which we sold
all of the shares of our U.S. subsidiary, QLT USA, and its principal asset, Eligard, we are
entitled to future payments comprising $10.0 million payable on or before October 1, 2010 and up to
an additional $200.0 million (of which we have received $18.7 million as of March 10, 2010),
payable on a quarterly basis in amounts equal to 80% of the royalties paid under the license
agreements with each of Sanofi Synthelabo Inc. (Sanofi) and MediGene Aktiengesellschaft
(MediGene) for the commercial marketing of Eligard in the U.S., Canada and Europe. We are
entitled to these payments until the earlier of our receipt of the additional $200.0 million or
October 1, 2024. See the section entitled Key Developments below.
Research and Development
We devote significant resources to research and development programs in various stages of
development. Our current research and development efforts are focused on:
Punctal Plug Drug Delivery System for the treatment of glaucoma and allergic conjunctivitis.
The majority of our research and development effort is directed towards our proprietary punctal
plug technology, which is a minimally invasive drug delivery system that we are developing with the
goal of delivering a variety of drugs topically to the eye through controlled sustained release to
the tear film. We are initially targeting the treatment of glaucoma and ocular hypertension and are
presently conducting Phase II drug delivery and device studies in the latanoprost punctal plug drug
delivery program (L-PPDS). We also plan to commence a Phase II proof of concept study for the
treatment of allergic conjunctivitis through the sustained release of olopatadine in our punctal
plug drug delivery system in the second half of 2010.
5
Visudyne combined with Anti-VEGF drugs for the treatment of wet AMD. We are also continuing
to study the effectiveness of Visudyne in patients with wet AMD by exploring its use in combination
with the class of
therapeutics known as anti-VEGF drugs, which prevent the growth of abnormal blood vessels that
characterize wet AMD. We and Novartis have separately initiated studies examining the safety and
efficacy of Visudyne in combination with Lucentis®, an anti-VEGF drug. The purpose of
the studies is to determine if combination therapy reduces re-treatment rates compared with
Lucentis monotherapy while maintaining similar vision outcomes and an acceptable safety profile.
QLT091001 for the treatment of Leber Congenital Amaurosis. On March 12, 2009, we announced
results from a Phase Ia safety study in healthy adults of QLT091001, an orally administered
synthetic retinoid replacement therapy for 11-cis-retinal, which is a key biochemical component of
the visual retinoid cycle. In December 2009, we initiated a Phase Ib trial in pediatric patients
with Leber Congenital Amaurosis, an inherited progressive retinal degenerative disease that leads
to retinal dysfunction and visual impairment beginning at birth. We expect to report initial data
from the Phase Ib trial in the first half of 2010.
QLT091568 for the treatment of glaucoma and ocular hypertension. We are currently conducting
formulation and development work on QLT091568, a prodrug of a beta adrenergic antagonist (a novel
beta blocker) under investigation for its potential ability to lower intra-ocular pressure in
glaucoma and ocular hypertension patients. QLT091568 (formerly known as OT-730) was acquired on
December 30, 2009 from Othera Pharmaceuticals, Inc. and Othera Holding, Inc. (together, Othera).
The compound is currently being developed as an eye drop.
Business Strategy
Our goal is to build a leading biotechnology company focused on the field of ophthamology. In
addition to our revenues from sales of Visudyne in the U.S. from our direct sales efforts, we will
collect royalties from Novartis from the sale of Visudyne outside the U.S. and expect to collect
future contingent consideration from the commercial sale of Eligard in the U.S., Canada and Europe.
We intend to use these funds and our current cash to fund our research and development efforts, as
well as to build our product pipeline through our pursuit of strategic acquisitions or in-licensing
opportunities in the ocular field. Our growth will depend on the strength of our commercial
product, Visudyne, the liquidity provided by the contingent consideration earned from Eligard
sales, the success of our research and development efforts, and our ability to leverage our
clinical expertise and U.S. sales and marketing infrastructure and capabilities to acquire and
develop future product opportunities.
Key Developments
The following is a summary of the key developments that occurred in 2009.
Sale of QLT USA (Eligard)
Our product portfolio previously included the Eligard line of products approved for the palliative
treatment of advanced prostate cancer. Eligard incorporates a luteinizing hormone-releasing
hormone agonist, known as leuprolide acetate, with the Atrigel drug delivery system. The Atrigel
technology allows for sustained delivery of leuprolide acetate for periods ranging from one to six
months.
On October 1, 2009, we divested the Eligard line of products as part of the sale of all of the
shares of our U.S. subsidiary, QLT USA, to Tolmar for up to an aggregate $230.0 million. Pursuant
to the stock purchase agreement, we received $20.0 million on closing and will receive $10.0
million on or before October 1, 2010 and up to an additional $200.0 million payable on a quarterly
basis in amounts equal to 80% of the royalties paid under the license agreements with each of
Sanofi and MediGene, for the commercial marketing of Eligard in the U.S., Canada and Europe until
the earlier of our receipt of the additional $200.0 million or October 1, 2024. The net after-tax
proceeds of the transaction are expected to be approximately $230.0 million, assuming the entire
additional $200.0 million is paid. In connection with the transaction, we retained a non-exclusive
worldwide royalty-bearing license from QLT USA (now named Tolmar Therapeutics, Inc.) to patent
rights and other intellectual property related to the Atrigel drug delivery system for products in
the ocular and dermatology fields.
The contingent consideration earned from Tolmar under the stock purchase agreement for the fiscal
quarters ended September 30, 2009 and December 31, 2009, representing 80% of the royalties paid
under the Sanofi and MediGene agreements for those periods, was $8.4 million and $10.3 million,
respectively. Our contingent consideration under the stock purchase agreement is dependent upon
sales of Eligard by Sanofi and MediGene, which could vary significantly due to competition,
manufacturing difficulties and other factors. See Item 1A. Risk Factors.
6
Restructure of Novartis Relationship
In 1994, we entered into the PDT Product Development, Manufacturing and Distribution Agreement
(PDT Agreement) with Novartis for the worldwide development and commercialization of PDT products
for eye diseases, including Visudyne. On October 16, 2009, we substantially restructured our
business arrangement with Novartis by amending and restating the PDT Agreement pursuant to the
Amended and Restated PDT Product Development, Manufacturing and Distribution Agreement (Amended
PDT Agreement). Under the Amended PDT Agreement, effective January 1, 2010, we and Novartis
ceased joint development of Visudyne (and any other PDT products) and all net revenue and cost
sharing associated with the manufacturing and commercialization of Visudyne. Despite ceasing our
joint development efforts, we and Novartis continue to separately conduct development work on
Visudyne under the RADICAL and SUMMIT (consisting of the DENALI, MONT BLANC and EVEREST studies)
clinical trial programs, respectively.
Under the Amended PDT Agreement, effective January 1, 2010, we received exclusive U.S. rights to
the Visudyne patents to sell and market Visudyne in the U.S. As a result, we have established a
direct sales force in the U.S. through our wholly-owned U.S. subsidiary, QLT Ophthalmics, Inc., and
have rights to all end-user revenue derived from Visudyne sales in the U.S. Novartis has retained
marketing and sales rights outside the U.S. and will pay us a royalty of 20% of net sales outside
the U.S. until December 31, 2014, and thereafter 16% of net sales, until the expiry of the Amended
PDT Agreement on December 31, 2019. We continue to manufacture Visudyne and will supply the
product at a pre-specified price exclusively to Novartis for distribution outside the U.S. See the
section entitled Visudyne Our Approved Product below.
Settlement of MGH Litigation
Following the 2008 judgment of the U.S. District Court for the District of Massachusetts in favor
of Massachusetts Eye and Ear Infirmary (MEEI), under which we were ordered to pay MEEI, among
other things, 3.01% of all past, present and future worldwide net sales of Visudyne, on February
12, 2009, the General Hospital Corporation, doing business as Massachusetts General Hospital
(MGH), launched a legal action against us in the Superior Court of the Commonwealth of
Massachusetts alleging that it entered into a written agreement with us that required us to pay MGH
the same amount that we pay MEEI on net sales of Visudyne. At the time of the action, our license
agreement with MGH provided for a 0.5% royalty payable to MGH for Visudyne sales in the U.S. and
Canada, and was subject to a most-favored-nations provision which would have required us to adjust
the royalty rate upward had we entered into a license agreement with MEEI for the same rights at a
higher rate.
On November 24, 2009, we announced that we reached a settlement with MGH. Under the terms of the
settlement agreement and amendment to license agreement, we paid MGH $20.0 million, constituting
payment in full for all past and future royalty obligations and in satisfaction and settlement of
any obligations we had, may have, or may have had to MGH in connection with the subject matter of
the lawsuit. The action was dismissed with prejudice on December 1, 2009. See Item 3. Legal
Proceedings and Note 22 in the Notes to the Consolidated Financial Statements. We currently have
no outstanding litigation.
Securities Transactions
On October 27, 2009, we announced that our Board of Directors authorized the repurchase of up to
2.7 million of our common shares, being 5% of our issued and outstanding common shares, over a 12
month period commencing November 3, 2009 under a normal course issuer bid. Since initiating the
normal course issuer bid, we have repurchased through the facilities of the NASDAQ Stock Market and
immediately cancelled an aggregate 866,790 common shares for an aggregate purchase price of
approximately $4.0 million.
On December 1, 2008, we announced our decision to proceed with a modified Dutch Auction tender
offer to purchase a number of shares of our common stock that would not exceed an aggregate
purchase price of $50.0 million. Under this Dutch Auction tender offer, shareholders were invited
to tender all or a portion of their shares at a price per share that was not less than $2.20 and
not greater than $2.50. Based on the number of shares tendered and the prices specified by the
tendering shareholders, we determined the lowest price that we were required to pay to purchase a
number of shares of our common stock that did not exceed an aggregate purchase price of $50.0
million. On January 26, 2009, we accepted for purchase and cancellation 20 million common shares at
a price of $2.50 per share, totalling $50.0 million. See Note 13 in the Notes to the Consolidated Financial Statements.
7
Visudyne Our Approved Product
Visudyne is a photosensitizer which we co-developed with Novartis for the treatment of subfoveal
CNV due to wet AMD, the leading cause of blindness in people over the age of 55 in North America
and Europe.
Photodynamic Therapy
Visudyne utilizes our patented PDT technology. PDT is a minimally invasive medical procedure that
utilizes photosensitizers (light-activated drugs) to treat a range of diseases associated with
rapidly growing tissue, such as the formation of solid tumors and abnormal blood vessels. PDT is a
two-step process. First, the photosensitizer is administered to the patient by intravenous
infusion or other means, depending on the condition being treated. Second, a pre-determined dose
of non-thermal light is delivered at a particular wavelength to the target site to interact with
the photosensitizer. The photosensitizer traps energy from the light and causes oxygen found in
cells to convert to a highly energized form called singlet oxygen that causes cell death by
disrupting normal cellular functions. Because the photosensitizer and light have no effect unless
combined, PDT is a relatively selective treatment that minimizes damage to normal surrounding
tissue and allows for multiple courses of therapy.
For ocular PDT applications, non-thermal lasers provide the necessary intensity of light required.
For applications of PDT to internal organs, physicians use lasers and fiber optics to deliver the
appropriate intensity of light to abnormal tissue.
Wet AMD
Wet AMD is an eye disease characterized by the growth of abnormal blood vessels under the macula,
which is the central part of the retina. Because these vessels do not mature properly in the
elderly, they begin to leak and, over time, cause photoreceptor damage that results in the
formation of scar tissue and a loss of central vision. Although the progression of the disease
varies by patient, the majority of patients with wet AMD become legally blind in the affected eye
within approximately two years following the onset of the disease. Based upon proprietary market
research, we estimate that worldwide approximately 500,000 new cases of wet AMD are diagnosed
annually, of which approximately 200,000 are diagnosed in North America, 200,000 are diagnosed in
Europe and 100,000 are diagnosed in the rest of the world. There are three forms of wet AMD:
predominantly classic, minimally classic and occult. These forms are distinguished by the
appearance of the lesions on fluorescein angiography that form at the back of the eye.
Approved Indications
Visudyne is approved for the following indications:
Predominantly Classic CNV in AMD. Visudyne has been approved for marketing for predominantly
classic subfoveal CNV in AMD in over 80 countries, including the U.S., Canada, Japan, Australia,
New Zealand and the European Union (EU) countries.
Minimally Classic CNV in AMD. Visudyne has been approved for minimally classic CNV in Japan.
Occult with no Classic CNV in AMD. Visudyne has been approved for the occult form of CNV in
over 29 countries, including Japan, Australia, New Zealand and Switzerland. Visudyne was
previously approved in the EU for the occult form of CNV. However, in April 2007, after reviewing
the results in the Visudyne occult study, the Committee for Medicinal Products for Human Use
(CHMP) recommended to the European Commission that the indication of the use of Visudyne in the
treatment of the occult form of CNV be deleted from the label for Visudyne in the EU. In June 2007,
the European Medicines Agency (EMEA) endorsed the recommendation by CHMP to delete the indication
of Visudyne in the treatment of occult subfoveal CNV from the label for Visudyne in the EU.
CNV due to Pathologic Myopia. Pathologic myopia (PM) is a degenerative form of
near-sightedness that occurs largely in persons aged 30 to 50 and can result in CNV. We have
received regulatory approval of Visudyne for the treatment of subfoveal CNV due to PM in over 40
countries, including the U.S., Canada and the EU.
CNV due to Presumed Ocular Histoplasmosis Syndrome. Presumed ocular histoplasmosis syndrome
(OHS) is a condition caused by a fungal infection endemic to certain areas in the central and
eastern U.S. It can lead to severe, irreversible vision loss and is a leading cause of blindness
in adults who have lived in geographic
areas where the soil mold Histoplasma capsulatum is found. Visudyne is approved for the treatment
of subfoveal CNV secondary to OHS in the U.S. and Canada.
8
Commercialization Rights and Revenue
In 1994, we entered into the PDT Agreement with Novartis for the worldwide development and
commercialization of PDT products for eye diseases, including Visudyne. Under the PDT Agreement,
we manufactured and supplied Visudyne and Novartis was responsible for worldwide marketing and
distribution of Visudyne. We and Novartis shared the net revenues from product sales after
deductions for marketing costs and manufacturing costs (including any third-party royalties), all
calculated according to a formula set out in our agreement.
On October 16, 2009, we substantially restructured our business arrangement with Novartis by
amending and restating the PDT Agreement pursuant to the Amended PDT Agreement. Under the Amended
PDT Agreement, effective January 1, 2010, we and Novartis ceased joint development of Visudyne and
all net revenue and cost sharing associated with the manufacturing and commercialization of
Visudyne. Despite ceasing our joint development efforts, we and Novartis separately continue to
conduct development work on Visudyne under the RADICAL and SUMMIT clinical trial programs,
respectively.
Under the Amended PDT Agreement we received exclusive U.S. rights to the Visudyne patents to sell
and market Visudyne in the U.S. and retain all end-user revenue derived from U.S. sales. Novartis
has retained distribution, sales and marketing rights to Visudyne outside the U.S. and will pay us
a royalty of 20% of net sales outside the U.S. until December 31, 2014, and thereafter 16% of net
sales, until the expiry of the Amended PDT Agreement on December 31, 2019. We continue to
manufacture and supply Visudyne at a pre-specified price exclusively to Novartis for sales outside
the U.S.
The Amended PDT Agreement sets forth the obligations of each party in connection with payment of
third-party royalties related to Visudyne during the term and following expiry of the Amended PDT
Agreement. Under the Amended PDT Agreement, we and Novartis have also released each other from all
open claims we may have against the other, including any in connection with our previous litigation
with MEEI and MGH. See Item 3. Legal Proceedings and Note 22 in the Notes to the Consolidated
Financial Statements.
Novartis may terminate the Amended PDT Agreement for convenience in its entirety or on a
country-by-country basis on 12 months prior written notice. In the event Novartis terminates the
Amended PDT Agreement or either party ceases to commercialize Visudyne in their respective
territories (and in the case of Novartis in any country in its territory), the other party will
have the exclusive right, at its option, to commercialize Visudyne in that country or territory, as
the case may be. Under the terms of the Amended PDT Agreement, we and Novartis indemnify each other
in connection with certain matters relating to our respective contractual obligations.
Our Products In Development
We focus our research and development efforts in the field of ophthalmology. The following table
sets forth our current product development programs:
|
|
|
Product/Indication |
|
Status/Development Stage |
|
|
|
Punctal Plug (latanoprost) |
|
|
|
|
|
Glaucoma and Ocular Hypertension
|
|
Phase II studies ongoing through 2010. |
|
|
|
Punctal Plug (olopatadine) |
|
|
|
|
|
Allergic Conjunctivitis
|
|
Phase II proof of concept study
planned to be initiated in the second
half of 2010. |
|
|
|
Visudyne |
|
|
|
|
|
Wet AMD
|
|
Phase II study of Visudyne followed by
an anti-VEGF drug (with or without
dexamethasone) either as a bi-therapy
or triple therapy, expected to
complete in the first half of 2010. |
QLT091001 |
|
|
|
|
|
Leber Congenital Amaurosis
|
|
Completed Phase Ia study in March
2009. Commenced Phase Ib study in
December 2009. |
QLT091568 |
|
|
|
|
|
Glaucoma and Ocular Hypertension
|
|
Phase I/II proof of concept study
completed by Othera in 2009.
Preclinical, formulation and
development work through 2010. |
9
Punctal Plug Drug Delivery System
Our proprietary punctal plug drug delivery technology is a minimally invasive drug delivery system
we are developing with the goal of delivering a variety of drugs to the eye through controlled
sustained release to the tear film. The platform technology builds upon a well known ocular
device, punctal plugs, which are placed in the tear duct, or punctum, of the eye
in a simple office procedure routinely performed by an ophthalmologist or optometrist.
Punctal plugs have been traditionally used for a number of years to block the drainage
of tears in patients with dry eye syndrome and the dry eye components of various ocular
surface diseases. We are advancing the concept of using a punctal plug to deliver ocular
medications using a drug eluting core. We believe this drug delivery platform has the potential to
address a broad range of ocular diseases that are currently being treated with eye drops, including
glaucoma, allergy and dry eye and may be used for post-surgical care. Our goal is to develop a
delivery system comprising a proprietary punctal plug designed to be retained for the desired
treatment duration and a proprietary drug delivery core that can be tailored to deliver a wide
range of therapeutic agents over different time periods.
Current therapies using eye drops typically require relatively high drug doses due to the
relatively inefficient method of drug delivery. The periodic dosing of an eye drop results in
pulsatory dosing, with the peak drug concentration available in the eye shortly after
administration which diminishes with time until it is restored by the administration of the next
eye drop. Delivery of therapeutics via the punctal plug delivery system could result in lower drug
doses and stable, sustained drug concentrations which, if achieved, we believe could be a desirable
alternative to daily treatment with eye drops.
Initial Drug and Target Indication
Latanoprost for Glaucoma and Ocular Hypertension. The first indication we are pursuing for
our drug delivery system is the treatment of glaucoma and ocular hypertension by the sustained
release of latanoprost, a prostaglandin analog. Glaucoma is a disease of the optic nerve involving
a progressive loss of retinal ganglion cells that is often associated with elevated intraocular
pressure (IOP) that results in a reduced or diminished visual field over time. Latanoprost has
been previously approved by the U.S. Food and Drug Administration (FDA) for reducing IOP in
patients with glaucoma or ocular hypertension. If successful, our punctal plug drug delivery
system, when inserted into the punctum in the eye and retained for the desired treatment duration,
will release a steady stream of latanoprost into the tear film.
Current Treatment. Approximately 99% of glaucoma patients are treated with topical
medications such as eye drops, four to six percent receive surgery and, on average, each diagnosed
patient has multiple visits to his or her eye physician each year. Due to the progressive nature of
the disease, compliance with topical eye drop medications in glaucoma patients is crucial for
effective management of the disease. Compliance with existing glaucoma medications is generally
acknowledged to be low, with approximately half of treated patients in the U.S. not refilling their
prescription after the first six months of therapy. According to IMS Health, prostaglandin
analogs, such as latanoprost, represent the largest segment of the prescribed glaucoma medication
market. Latanoprost is marketed under the trade name Xalatan® in the U.S.
Potential Market. Glaucoma is a chronic, life-long disease that affects approximately 60-80
million patients worldwide and, according to the Glaucoma Research Foundation, is the second
leading cause of blindness in the western world. IMS Health estimates that the U.S. market for
glaucoma eye drop treatments is approximately $2.0 billion annually, despite the poor compliance
associated with the current eye drop therapies.
Latanoprost Punctal Plug Drug Delivery System (L-PPDS). Our goal is to develop a punctal plug
delivery system that provides a more effective, convenient and reliable treatment alternative for
glaucoma patients that could ultimately improve patient compliance with their medication and the
long-term outcomes for their disease. We believe that, if successful, the application of
latanoprost in the punctal plug delivery system could potentially replace, in whole or in part, the
existing eye drop therapies used for the treatment of glaucoma.
10
L-PPDS Phase II Clinical Trials and Device Program. On March 10, 2010, we released data on
our punctal plug device study and concurrent Phase II clinical trials on our L-PPDS with
latanoprost concentrations of 44 µg, 81 µg and two different 95 µg formulations.
L-PPDS Phase II Clinical Trials. In February 2010, we completed a Phase II, open-label,
multicenter, two cohort study conducted to investigate the safety and preliminary efficacy of
L-PPDS containing either 44 µg (first cohort) or 81 µg (second cohort) of latanoprost in subjects
with open-angle glaucoma (OAG) or ocular hypertension (OH) over a six-week period. A total of
113 patients (60 in the 44 µg cohort and 53 in the 81 µg cohort) diagnosed with OAG/OH were
enrolled in this trial, with an average age of 65 years and mean baseline IOP of 24.9 ±
2.2 mmHg. The 44 µg cohort used a second-generation plug device and the 81 µg cohort used a
third-generation plug device.
We are also conducting an ongoing, Phase II, open-label, multicenter study to investigate the
safety and preliminary efficacy of L-PPDS containing two different formulations of 95 µg
latanoprost in subjects with OAG or OH over a 12-week period. The 95 µg formulations were
developed to deliver different average daily doses. Eighty-one subjects diagnosed with OAG/OH have
been enrolled in this trial with an average age of 63 years and mean baseline IOP of 25.0
± 2.4 mmHg. The 95 µg trial is using a third-generation plug device.
The objective of these trials is to evaluate different doses of latanoprost (44 µg, 81 µg or 95 µg)
to contribute data to identify novel formulations that achieve a ≥5 mmHg drop in mean IOP for
later-stage clinical trials. The ranges of the mean IOP change from baseline (mmHg) in the Phase
II studies are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latanoprost Concentration in L-PPDS |
|
|
44 µg |
|
81 µg |
|
95 µg (A) |
|
95 µg (B)* |
Number of Subjects |
|
|
N=57 |
** |
|
|
N=53 |
|
|
|
N=42 |
|
|
N=39 |
Mean IOP Baseline Value (mmHg) |
|
|
24.5 |
|
|
|
25.4 |
|
|
|
25.1 |
|
|
25.0 |
Range of Mean IOP Change from Baseline: Weeks 1 to 6 (mmHg) |
|
-3.3 to -3.6 |
|
-1.9 to -3.4 |
|
-3.4 to -4.1 |
|
-3.0 to -4.7 |
Status of Phase II Trial |
|
Complete |
|
Complete |
|
Ongoing to 12 weeks follow-up |
|
Ongoing to 12 weeks
follow-up |
Equivalent Number of Latanoprost Eye Drops (% of Amount in Eye Drops over 3 Months) |
|
|
29 (32 |
%) |
|
|
54 (60 |
%) |
|
|
63 (70 |
%) |
|
63 (70%) |
|
|
|
* |
|
The B formulation was designed to deliver a higher average daily dose
than the A formulation. |
|
** |
|
Of the 60 subjects enrolled, three did not have a follow-up IOP value and were excluded
from this analysis. |
Because a dose-response is not evident across all L-PPDS formulations tested, research efforts are
underway to evaluate alternative approaches to improving delivery of latanoprost to its target
receptors inside the eye.
The L-PPDS device was well tolerated over the testing period for each study. The overall adverse
events ranged from 1.7% to 11.7% for the 44 µg L-PPDS (cohort 1) and from 1.9% to 22.6% for the
81 µg L-PPDS (cohort 2). Eye itching (commonly seen with initial punctal plug wear), and increased
tearing were the most common adverse events (11.7% and 10.0%, respectively, in cohort 1, and 20.8%
and 22.6%, respectively, in cohort 2). Despite the higher incidence of adverse events in cohort 2
(81 µg L-PPDS), comfort and tearing scores were comparable between cohorts 1 and 2 over the
six-week study period. L-PPDS comfort combined grades of no awareness and mild awareness ranged
from 88% to 98% in cohort 1 and from 94% to 98% in cohort 2 over the six weeks. Tearing combined
grades of none and occasional ranged from 85% to 96% in cohort 1 and from 81% to 89% in cohort
2 over six weeks.
11
In the 95 µg trial, based on preliminary data of 70 subjects (86%) who have completed six weeks of
follow-up, the overall incidence of adverse events ranges from 1.2% to 9.9%. The most common
adverse events are conjunctival hyperemia (9.9%), eyelid itching (8.6%) and eye itching (6.2%). At
Week 6, 97% of subjects rated L-PPDS comfort as no awareness or mild awareness, and 97% of
subjects rated tearing as none or occasional.
Punctal Plug Device Study. Concurrent with the Phase II L-PPDS dosing trials, we are
conducting an ongoing, device, open-label, multicenter, study to investigate the safety,
tolerability, comfort, ease of handling and insertion/removal, and retention of punctal plug
prototype designs. The objective of this study is to identify a punctal plug design that
demonstrates a 90% retention over 90 days. Recent clinical data on the third-generation punctal
plug designs demonstrate a retention rate of 81%, based on available data from 185 eyes with 12
weeks of follow-up. Retention data are derived from a study of healthy volunteers testing several
punctal plug prototype designs and the Phase II studies of the L-PPDS in patients with OAG or OH,
in which the third-generation prototypes were used.
More than 800 healthy volunteers have been fitted with a punctal plug in each eye, to wear for
up to 12 weeks. Enrollment is ongoing. Interim analyses show that the third-generation punctal plug
designs have been well tolerated. The most frequently reported adverse device events for subjects
fitted with the third-generation punctal plug (without drug) have been eye itching (6.5%);
increased lacrimation and ocular discomfort (3.7% for each event); and conjunctival hyperemia,
conjunctival edema, foreign body sensation in eyes, and eyelid edema (2.8% for each event). Comfort
scores for the third-generation punctal plugs are greater than 90 out of 100 on a scale where
100 points equals no awareness.
Prototype punctal plug designs continue to be refined and evaluated to further improve retention
rates and selection of the final design will converge with the identification of a dose formulation
that is to be taken into later-stage clinical trials. In parallel with the punctal plug device
refinements, additional activities are focused on optimizing an insertion tool and development of a
simple home-use detection system that would allow patients to confirm the presence of the punctal
plugs. Studies of the prototype punctal plugs are also continuing to evaluate the effect of
repeated insertions on retention rates.
Second Drug and Target Indication
Olopatadine for Allergic Conjunctivitis. The second indication we are pursuing for our
punctal plug drug delivery system is the treatment of allergic conjunctivitis through the sustained
release of olopatadine. Allergic conjunctivitis is an allergic response on the surface of the eye
due to an immune reaction to allergy-causing substances such as pollen spores or pet dander.
Olopatadine is an active pharmaceutical ingredient that has been approved by the FDA in an eye drop
dosage form for the treatment of the signs and symptoms of allergic conjunctivitis. The Asthma and
Allergy Foundation of America estimates that approximately 50 million people in the U.S. suffer
from allergies and, according to market research, approximately 40% of patients with allergies have
eye symptoms such as itching and watery eyes. According to IMS Health, the worldwide market for
ophthalmic allergy products was over $1 billion in 2009 and olopatadine is the dominant treatment
for ocular allergies, with approximately 65% market share in the U.S. and worldwide sales of
approximately $475 million in 2009. Olopatadine is marketed under the trade names
Patanol® and PatadayTM in the U.S. We plan to initiate a proof of concept
study to test the safety and efficacy of olopatadine in our punctal plug drug delivery system for
the treatment of allergic conjunctivitis in the second half of 2010, with results expected by year
end.
Visudyne Expansion of Therapy
In view of the importance of understanding the clinical significance of the use of Visudyne in
combination with other therapies for the treatment of wet AMD, Novartis and QLT separately
initiated studies comparing the safety and efficacy of Visudyne in combination with an anti-VEGF
drug either as bi-therapy (Visudyne, plus an anti-VEGF) or triple therapy (Visudyne, plus an
anti-VEGF and a steroid). These studies include the North American studies RADICAL and DENALI, and
the European study MONT BLANC. RADICAL is sponsored by QLT, while the DENALI and MONT BLANC studies
are sponsored by Novartis. The twelve-month primary analysis results for the RADICAL and MONT
BLANC studies were reported in 2009 and are described below. We anticipate that the twelve-month
results for the DENALI study will be presented in the first half of 2010.
12
In December 2009, Novartis presented the six-month results of its EVEREST study, assessing the
effect of Visudyne alone or in combination with Lucentis compared with Lucentis alone in patients
with symptomatic macular polypoidal choroidal vasculopathy (PCV). PCV is a potentially blinding
eye disease characterized by the growth of tiny, abnormal blood vessels, or lesions, under the
retina. PCV lesions have been found to account for 23-55% of patients of Asian origin with
presumed neovascular AMD, as opposed to approximately 8-13% of patients of Caucasian origin. PCV
is not an approved indication for Visudyne. The results of the EVEREST study are described below.
In addition, we are supporting certain investigator-sponsored studies that evaluate different
combinations of Visudyne with anti-VEGF drugs. Some of these studies are also investigating the
impact of lower light doses on the efficacy and safety of Visudyne, for example, through reduced
rate of fluence administered during the PDT process.
Clinical Trials
RADICAL Study (QLT-sponsored). On June 2, 2009, we announced the twelve-month primary
analysis results for our Phase II RADICAL study. The RADICAL study is a Phase II, multicenter,
randomized, single-masked study comparing reduced-fluence Visudyne®-Lucentis® combination therapies
(with or without
dexamethasone) with Lucentis monotherapy in 162 subjects with CNV secondary to wet AMD. The
purpose of the study is to determine if Visudyne combined with Lucentis reduces retreatment rates
compared with Lucentis monotherapy, while maintaining similar vision outcomes and an acceptable
safety profile. Three Visudyne-Lucentis combination therapies were evaluated against Lucentis
monotherapy:
|
|
|
triple therapy with quarter-fluence Visudyne followed by Lucentis and then dexamethsone; |
|
|
|
|
triple therapy with half-fluence Visudyne followed by Lucentis and then dexamethsone; and |
|
|
|
|
double therapy with half-fluence Visudyne followed by Lucentis. |
The overall twelve-month results showed that fewer re-treatment visits were required with the
combination therapies than with Lucentis monotherapy, and the differences were statistically
significant. Also, while the mean visual acuity (VA) appeared to have improved similarly across
all treatment groups, the confidence intervals were wide. There were no unexpected safety findings,
and adverse event incidence was similar across treatment groups.
Of the four treatment groups, the triple therapy half-fluence group demonstrated the best results,
with the fewest retreatment visits and mean VA improvement most similar to Lucentis monotherapy
through 12 months. Patients in the triple therapy half-fluence group had a mean of 3.0 retreatment
visits compared with 5.4 for patients who received Lucentis monotherapy (P<.001). At the month
12 examination, mean visual acuity in the triple therapy half-fluence group improved 6.8 letters
from baseline compared with 6.5 letters in the Lucentis monotherapy group (P=.94). While all
combination groups had significantly fewer retreatment visits than the Lucentis monotherapy group,
the better results (both in VA change and retreatment visits) in the triple therapy half-fluence
group compared with the other combination groups was a trend and was not statistically different.
Patients were evaluated for VA and safety, and to assess if retreatment was needed, at visits every
month over 12 months of study follow-up. Overall, 10 patients discontinued the study by 12 months
for reasons unrelated to Visudyne or Lucentis. The final results at 24 months are expected in the
second quarter of 2010.
MONT BLANC Study (Novartis-sponsored). Twelve-month primary analysis results from the
Novartis-sponsored MONT BLANC study were presented by Novartis in June 2009. MONT BLANC is the
European study of the Novartis-sponsored SUMMIT clinical trial program that investigated the
efficacy and safety of combining Visudyne and Lucentis. MONT BLANC was a randomized, double-masked,
multicenter trial in 255 patients with subfoveal CNV secondary to AMD. The initial study duration
was 24 months, however, Novartis terminated the study at 12 months. The purpose of the study was to
evaluate whether Visudyne combined with Lucentis is not inferior to Lucentis monotherapy with
respect to the mean change from baseline in VA and to evaluate the proportion of patients with a
treatment-free interval of at least three months duration after month two. At the month 12
examination, mean VA in the Visudyne combination therapy group improved 2.5 letters from baseline
compared with a 4.4 letter improvement in the Lucentis monotherapy group. In the combination
therapy group, 96% of patients had a three-month treatment-free interval, compared with 92% in the
Lucentis monotherapy group.
Twelve-month results of the MONT BLANC study demonstrated that combining standard-fluence Visudyne
with Lucentis 0.5 mg can deliver VA improvements that are non-inferior to a Lucentis monotherapy
regimen with three Lucentis loading doses followed by injections on a monthly as-needed basis
(non-inferiority margin of seven letters). There was no significant difference between the
combination and monotherapy groups with regard to proportion of patients with a treatment-free
interval of at least three months duration after month two. There were no unexpected safety
findings, and adverse event incidence was similar between treatment groups. Overall, only 15
patients, or 6%, discontinued the study before month 12.
13
EVEREST Study (Novartis-sponsored). Six-month results from the Novartis-sponsored EVEREST
study were presented in December 2009. EVEREST is the first multi-center, double-masked,
indocyanine green angiography (ICG-A) -guided randomized controlled trial with an angiographic
treatment outcome designed to assess the effect of Visudyne alone or in combination with Lucentis
compared with Lucentis alone in patients with PCV. A total of 61 PCV patients of Asian ethnicity
from Hong Kong, Taiwan, Korea, Thailand and Singapore participated in the study.
The key results from EVEREST include:
Complete Polyp Regression (primary endpoint): Visudyne combination with Lucentis and
Visudyne monotherapy showed a significantly higher proportion of patients with complete polyp
regression at month six than the Lucentis monotherapy group. Complete polyp regression was achieved
in 77.8% of patients in the Visudyne Lucentis combination group and 71.4% of patients in the
Visudyne monotherapy group, compared with 28.6% of
patients in the Lucentis monotherapy group (p=0.0018 for combination vs. Lucentis, p=0.0037 for
Visudyne vs. Lucentis).
Best Corrected Visual Acuity from baseline to Month Six: On average, patients in all
groups gained vision, with patients in the combination group achieving the highest gain (+10.9
letters from baseline). Lucentis monotherapy patients gained +9.2 letters; Visudyne monotherapy
patients gained +7.5 letters. Differences between the groups were not statistically significant.
All therapies were well tolerated and the safety findings were consistent with the
established safety profiles of Visudyne and Lucentis.
QLT091001 Synthetic Retinoid Program
We are developing QLT091001, an orally administered synthetic retinoid replacement therapy for
11-cis-retinal, which is a key biochemical component of the visual retinoid cycle. The drug is
being developed under a Co-Development Agreement with Retinagenix LLC
(Retinagenix) for the potential treatment
of Leber Congenital Amaurosis (LCA), an inherited progressive retinal degenerative disease that
leads to retinal dysfunction and visual impairment beginning at birth. Under the terms of the
Co-Development Agreement, we are responsible for developing and commercializing the products for
use in ocular and all other human diseases. Retinagenix will participate in research in support of
the co-development collaboration and is eligible to receive certain payments upon achievement of
certain development, approval and sales milestones, as well as a royalty on net sales of products.
Initial Target Indication
Leber Congenital Amaurosis. LCA is a genetic eye disease which affects approximately one in
81,000 newborns worldwide, for which there is currently no available treatments. Genetic eye
diseases such as LCA arise from gene mutations of enzymes or proteins required in the biochemistry
of vision. QLT091001 is a replacement for 11-cis retinal, which is an essential component of the
retinoid-rhodopsin cycle and visual function. Two different gene mutations (retinal pigment
epithelium protein 65 (RPE65) and lecithin-retinol acyltransferase (LRAT)) result in an
inadequate production of 11-cis-retinal and occur in approximately 10% of patients with LCA. LCA
is characterized by abnormalities such as roving eye movements and sensitivity to light, and
manifests in severe vision loss from birth. Eye examinations of infants with LCA reveal normal
appearing retinas; however, low level of retinal activity, measured by electroretinography,
indicates very little visual function.
LCA Phase Ia Study. On March 12, 2009, we reported results from a Phase Ia short term safety
study of QLT091001 in healthy adults. Overall the trial demonstrated QLT091001 to have an adequate
safety profile in healthy adults, and achieved its primary goal of estimating an appropriate dose
for studies in patients. The trial was an open-label, single center, ascending dose trial
conducted to evaluate the safety and tolerance of multiple administrations of the synthetic
retinoid drug in 20 healthy adults volunteers. No serious adverse events related to the study
treatment were reported.
LCA Phase Ib Study. In December 2009, we commenced enrollment in a Phase Ib study of
QLT091001 in pediatric patients with LCA. The Phase Ib trial is an open-label, single center trial
to evaluate the safety profile and effects on retinal function in eight pediatric patients aged
five to 14 years with LCA due to inherited deficiency of RPE65 or LRAT. Patients will receive
daily doses of QLT091001 for seven days at the Montreal Childrens Hospital in Montreal, Canada.
The trial will monitor for changes in several visual function parameters including the
best-corrected visual acuity over the duration of the study. Initial Phase Ib data is expected to
be reported in the first half of 2010.
14
QLT091568 Beta Blocker Glaucoma Program
We are currently conducting formulation and development work on QLT091568, a prodrug of a beta
adrenergic antagonist (a novel beta blocker) under investigation for its potential ability to lower
intra-ocular pressure in glaucoma patients without the systemic side effects common among other
beta blockers. We acquired QLT091568 on December 30, 2009 from Othera pursuant to an asset purchase
agreement. There are no future milestones, royalties or other payments payable under the asset
purchase agreement.
Initial Target Indication
Glaucoma. Glaucoma is a disease of the optic nerve involving a progressive loss of retinal
ganglion cells which is often associated with increased eye pressure which results in a reduced or
diminished visual field over time. See the section entitled Our Products in Development,
Punctal Plug Drug Delivery System above for information on the potential glaucoma market and
current treatments.
Clinical Trial Results. A Phase I/II clinical trial completed by Othera in 2009 demonstrated
that the compound was safe and well-tolerated in patients with glaucoma or ocular hypertension who
were treated topically with eye drops. The results of that study also suggested that the compound
may have comparable efficacy to timolol, a non-selective beta adrenergic receptor-blocker used in
its ophthalmic form to treat open-angle and secondary glaucoma, but possibly without the systemic
side-effects often associated with that drug.
Planned Development of QLT091568. We plan to conduct further preclinical, formulation and
development work on QLT091568 as a stand-alone eye drop through 2010.
Manufacturing
We contract with qualified third parties to manufacture and supply Visudyne. We maintain internal
quality control, quality assurance and regulatory affairs to oversee the activities of these third
party manufacturers. Visudyne is currently manufactured in stages by several contract facilities
located in the U.S., Europe and Japan. We have supply agreements with Nippon Fine Chemical Co.,
Ltd., JHP Pharmaceuticals, LLC (previously Parkedale Pharmaceuticals Co., Ltd.), Hollister-Stier
Laboratories LLC, and Orgapharm S.A.S., a subsidiary of Axyntis Group, for manufacturing activities
in the commercial production of Visudyne. The key starting materials for the Visudyne manufacturing
process are secured by long-term supply agreements or through inventory safety stocking. We
believe that our current inventory of materials and outsourced manufacturing arrangements will
allow us to meet our near and long-term manufacturing needs for Visudyne. Our manufacturing and
supply agreements have initial terms expiring on various dates beginning in December 2010 and
continuing through December 2014. We believe, but cannot assure, that we will be able to renew
these agreements as they expire or will enter into arrangements with suitable alternate suppliers
and manufacturers as needed. However, if we are not able to renew these agreements or find
suitable replacements, our business may be harmed.
Certain clinical and preclinical materials and active pharmaceutical ingredients (API) used in
our product candidates are currently produced at our facilities in Vancouver, British Columbia. We
also utilize a small number of third party contractors to manufacture and supply certain materials,
API and devices for our product candidates, and expect to continue to do so for our commercial
needs.
We and our contract manufacturers and suppliers are subject to the FDAs current Good Manufacturing
Practices (cGMP) regulations and other rules and regulations prescribed by regulatory authorities
outside the U.S. We rely on our contract manufacturers and suppliers to comply with cGMP
requirements and other applicable standards.
Product Sales, Marketing and Distribution
United States Distribution
Effective January 1, 2010, pursuant to the Amended PDT Agreement with Novartis, we received
exclusive U.S. rights to the Visudyne patents to sell and market Visudyne in the U.S. As a result,
we have established a small U.S.-based marketing, sales and distribution organization through our
wholly-owned U.S. subsidiary, QLT Ophthalmics, Inc. (QOI). Our sales and marketing efforts are
focused primarily on retinal specialists in private practice or at medical centres or hospitals in
the U.S. We follow typical pharmaceutical company sales and marketing practices, such as sales
representative visits to physicians, advertisements, direct mail, public relations and other
methods. QOI provides reimbursement support, a patient assistance program and customer service
programs related to Visudyne, including a product-specific website at www.visudyne.com, and other
order, delivery and fulfillment services. Our patient assistance program offers support for U.S.
resident patients who are advised by their physician that they need to be treated with Visudyne,
but who do not have sufficient insurance for the product and qualify under the household income
guidelines and other criteria for the program.
15
We also provide on-going education and scientific-based information to physicians through Medical
Science Liaisons, who are available on request of a physician, through our wholly-owned U.S.
subsidiary, QLT Therapeutics, Inc.
Visudyne is sold in the U.S. by QOI to specialty wholesale distributors who then distribute the
product directly to end-user customers. Our specialty wholesale distributors for Visudyne in the
U.S. are ASD Specialty Healthcare, Inc. d/b/a Besse Medical (Besse) and Priority Healthcare
Distribution, Inc. d/b/a CuraScript SD Specialty Distribution (CuraScript). Besse and CuraScript
were previously the primary specialty wholesale distributors of Visudyne in the U.S. under
distribution agreements with Novartis.
Effective January 1, 2010, QOI entered into distribution agreements with each of Besse and
CuraScript. The distribution agreement with Besse has an initial term expiring December 31, 2011
and will be automatically renewed for successive one year periods unless either party provides
notice that it does not intend to renew at least 120 days before the end of the current term. The
distribution agreement with CuraScript has a term expiring on March 31, 2010. We believe that on
expiry of these agreements we will be able to enter into further agreements with these or other
parties for distribution of our product, however, in the event we are unable to do so on terms
acceptable to us or at all, our business may be harmed.
Rest of World Distribution
Visudyne is marketed and sold outside the U.S. by Novartis. Under the Amended PDT Agreement, we
manufacture Visudyne and supply the product at a pre-specified price exclusively to Novartis for
distribution outside the U.S. Novartis will also pay us a royalty on net sales of Visudyne outside
the U.S. after January 1, 2010.
Financial Information about Segments and Geographic Areas
We operate in one segment and the geographic information required herein is contained in Note 21 -
Segment Information in the Notes to the Consolidated Financial Statements and is incorporated by
reference herein.
Supply of Medical Lasers Required for Visudyne Therapy
Visudyne therapy requires a physician to deliver a dose of non-thermal light at a particular
wavelength to target tissue in the eye in order to activate the photosensitizer. We do not
manufacture the lasers required to deliver this light. Diode laser systems required for Visudyne
therapy are manufactured and sold by medical device companies, including Carl Zeiss-Meditec AG,
Lumenis Ltd. and Quantel Medical Inc. All three companies have portable diode lasers that have
been commercially approved for use with Visudyne in the U.S., Europe and elsewhere, except that
only the Carl Zeiss-Meditec diode laser is commercially available in Japan.
Patents, Trademarks and Proprietary Rights
We seek to protect our proprietary technology by obtaining patents to the extent we consider it
advisable, and by taking contractual measures and other safeguards to protect our trade secrets and
innovative ideas. We currently own or have acquired rights to a number of patents and patent
applications for the technologies utilized in our commercial products and products in development
in the U.S., Canada and other jurisdictions.
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Our policy is to file patent applications on a worldwide basis in those jurisdictions where we
consider it beneficial, depending on the subject matter and our commercialization strategy. The
most significant patents owned or licensed by us are described below.
Visudyne
Verteporfin UBC License. Verteporfin, the active ingredient in Visudyne, is protected by
granted patents in major markets. These patents are owned by the University of British Columbia
(UBC) and exclusively licensed to us. We entered into a license agreement with UBC in 1988 that
granted us a worldwide exclusive royalty-bearing license to know-how and patents relating to
porphyrin derivatives, including verteporfin, the active ingredient in Visudyne, with the right to
sublicense. The license was amended and restated in December 2007 and terminates upon the
expiration of all of the licensed patents. UBC has the right to terminate the license upon, among
other things, our bankruptcy, winding up, liquidation or otherwise ceasing to carry on our business
(other than a disposition of all or substantially all of our assets to another party), our material
breach of the requirement to obtain and maintain insurance pursuant to the terms of the license, or
our material default under or our failure to comply with a material term of the licence which is
not remedied within 30 days.
Verteporfin Patent Rights. In the U.S., verteporfin is covered by Patent Nos. 4,920,143 (the
143 patent) and 5,095,030 (the 030 patent). The 143 patent expired on April 24, 2007. We
were granted a term extension of the 030 patent from April 24, 2007 to September 9, 2011. In
Europe, verteporfin is covered by European Patent 0352076, for which we applied for and received an
extension of patent term until July 18, 2014. In Japan, verteporfin is covered by JP 2834294 and
JP 2137244 for which we applied for and received extensions of patent term until January 20, 2013
and July 19, 2014, respectively. JP 2834294 lapsed on October 2, 2008 for non-payment of
annuities.
Verteporfin lipid-based formulation. We own or exclusively license patents covering the
Visudyne drug product relating to the lipid-based formulation of verteporfin. U.S. Patent No.
5,214,036, which expires on May 25, 2010, is owned by UBC and exclusively licensed to us. U.S.
Patent No. 5,707,608 expires on August 2, 2015, with foreign equivalents expiring in 2016. U.S.
Patent No. 6,074,666 expires on February 5, 2012, with foreign equivalents expiring in 2013. In
addition to these patents, we own or license several patents and patent applications covering
alternative formulations of verteporfin.
Approved Uses of Visudyne. We own or license patents covering certain approved uses of
Visudyne. U.S. Patent Nos. 4,883,790 and 5,283,225, both of which expired on January 20, 2007,
cover methods of treating target tissues and destroying unwanted cells using Visudyne and are owned
by UBC and exclusively licensed to us. U.S. Patent No. 5,756,541, expiring on March 11, 2016, with
foreign equivalents expiring in 2017, is co-owned by Novartis and us and covers methods of using
Visudyne to improve visual acuity in subjects having unwanted ocular neovasculature. U.S. Patent
No. 5,798,349, which expires on August 25, 2015, is co-owned by MGH, MEEI and us, and covers
methods of treating AMD using Visudyne. U.S. Patent No. 5,770,619, which expires on November 20,
2012, with foreign equivalents expiring in 2013, is owned by UBC and exclusively licensed to us and
covers methods of using Visudyne to treat neovasculature involving a reduced interval between drug
and light administration. In addition to these patents covering on-label uses of Visudyne, we own
or license several other patent applications relating to alternative methods of using Visudyne in
the treatment of ocular diseases, including AMD.
MGH License. We have an exclusive worldwide license from MGH for its rights in U.S. Patent
No. 5,798,349 and to all foreign equivalents relating to methods of treating AMD using verteporfin,
which MGH owns jointly with us and MEEI. These rights are non-exclusive if exclusive rights are not
available in any foreign jurisdiction. The term of the MGH license continues on a country by
country basis for so long as any such patent right remains in effect. The U.S. patent expires on
August 25, 2015. Under the MGH license, we were required to pay a 0.5% royalty to MGH based on
Visudyne sales in the U.S. and Canada. Pursuant to the terms of a
settlement agreement and amendment to license agreement dated November 24, 2009, we paid MGH an aggregate $20.0 million,
constituting payment in full of all past and future royalty obligations and the license is now
fully paid up. The payment was also in satisfaction and settlement of any obligations we had, may
have, or may have had in connection with the MGH litigation. See Item 3. Legal Proceedings and
Note 22 in the Notes to the Consolidated Financial Statements.
Photosensitizers. We own or license additional patent applications relating to PDT and
methods of using photosensitizers.
Punctal Plug Drug Delivery System
In connection with our acquisition of ForSight Newco II, Inc. (now named QLT Plug Delivery, Inc.)
in October 2007, we acquired a number of patent applications covering different aspects of the
punctal plug technology, including punctal plug designs and devices, methods of making punctal
plugs and uses thereof for delivering therapeutic drugs to the eye for treating eye diseases,
including glaucoma. Patents, if issued from these patent applications, would expire between 2024
and 2028, not including any possible patent term extensions that may be available. To further
expand and strengthen our intellectual property portfolio, we have filed and continue to file
additional patent applications on punctal plugs and devices, methods of manufacturing punctal plugs
and uses thereof in those jurisdictions where we consider it beneficial, depending on the subject
matter and our commercialization strategy.
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QLT901001
In connection with our exclusive worldwide co-development and license agreement entered into on
April 4, 2006 with Retinagenix to develop active synthetic retinoid drugs for
the treatment of degenerative retinal diseases, we have exclusively sub-licensed patent
applications relating to various synthetic retinoids and uses thereof, including in the treatment
of LCA. These patent applications are owned by the University of Washington, which has licensed
the patent applications to Retinagenix, and sub-licensed to us by Retinagenix. To further expand
and strengthen our intellectual property portfolio, we have filed and continue to file additional
patent applications on synthetic retinoids, and uses thereof in those jurisdictions where we
consider it beneficial, depending on the subject matter and our commercialization strategy.
QLT091568
On December 30, 2009 we acquired U.S. and foreign patent applications and other intellectual
property from Othera relating to the novel beta blocker compound, QLT091568, and formulations and
uses thereof. On December 15, 2009, a Notice of Allowance was issued by the U.S. Patent and
Trademark Office in respect of U.S. Patent Application No. 11/136,625, which covers the compound
QLT091568, compositions thereof, and uses thereof for the treatment of glaucoma and ocular
hypertension, and which upon issuance, is projected to expire on November 26, 2026. Following
further formulation and development work, our goal is to file additional patent applications on
formulations and uses thereof, in those jurisdictions where we consider it beneficial, depending on
the subject matter and our commercialization strategy.
Atrigel® System for Sustained Release Drug Delivery
Our proprietary drug delivery technology portfolio previously included all rights to the sustained
release Atrigel® drug delivery system, which rights were held by our U.S. subsidiary,
QLT USA. On August 25, 2008, QLT USA entered into an exclusive license agreement with Reckitt
Benckiser Pharmaceuticals, Inc. (Reckitt) under which Reckitt received an exclusive license to
the Atrigel drug delivery technology, except for certain rights retained by QLT USA, including
rights retained for use with the Eligard products. On October 1, 2009, we sold all of the shares
of QLT USA to Tolmar, which included any rights QLT USA retained related to Eligard and the Atrigel
drug delivery system. As part of the transaction, we retained a non-exclusive worldwide
royalty-bearing license from QLT USA (now named Tolmar Therapeutics, Inc.) to patent rights and
other intellectual property related to the Atrigel drug delivery system for products in the ocular
and dermatology fields.
Other Patents, Trademarks and Proprietary Rights
In addition to patent protection, we also rely on trade secrets, proprietary know-how and
continuing technological innovation to develop and maintain a competitive position in our product
areas.
We require our collaborative licensees and potential business collaborators, consultants and
employees who might have access to or be provided with proprietary information to sign
confidentiality undertakings.
Our patent position and proprietary technologies are subject to certain risks and uncertainties.
Although a patent has a statutory presumption of validity, the issuance of a patent is not
conclusive as to its validity or as to enforceability of its claims. Accordingly, there can be no
assurance that our patents will afford legal protection against competitors, nor can there be any
assurance that the patents will not be infringed by others, nor that others will not obtain patents
that we would need to license.
Unpatented trade secrets, improvements, confidential know-how and continuing technological
innovation are important to our scientific and commercial success. Although we attempt to and will
continue to protect our proprietary information through reliance on trade secret laws and the use
of confidentiality agreements with our collaborators, employees and consultants and other
appropriate means, there can be no assurance these measures will effectively prevent disclosure of
our proprietary information or that others will not develop independently or obtain access to the
same or similar information or that our competitive position will not be affected adversely
thereby.
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We have included information about risks and uncertainties relating to protection of our
proprietary information under Item 1A. Risk Factors.
Visudyne is sold around the world under a brand-name trademark which we are authorized to use by
Novartis. We own several registered trademarks in the U.S. and Canada and in other jurisdictions.
Competition
The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology
and intense competition. Our competitors include major pharmaceutical and biopharmaceutical
companies, many of which have financial, technical and marketing resources significantly greater
than ours and substantially greater experience in
developing products, conducting preclinical and clinical testing, obtaining regulatory approvals,
manufacturing and marketing. In addition, many biopharmaceutical companies have formed
collaborations with large, established pharmaceutical companies to support research, development
and commercialization of products that may be competitive with our products. Academic institutions,
government agencies and other public and private research organizations also are conducting
research activities and seeking patent protection and may commercialize products on their own or
through joint ventures. The existence of these products, or other products or treatments of which
we are not aware, or products or treatments that may be developed in the future, may adversely
affect the marketability of products developed by us.
Visudyne
In June 2006, Genentech, Inc. (Genentech) commercially launched Lucentis®, an anti-VEGF antibody,
in the U.S. for the treatment of neovascular wet AMD. In early 2007, Novartis, Genentechs
marketing partner for Lucentis outside of the U.S., began marketing Lucentis in the EU and in early
2009 in Japan for the treatment of wet AMD. Although not approved for this use, diluted Avastin®
(bevacizumab) from Genentech is also being used off-label extensively by physicians for the
treatment of wet AMD, either alone as monotherapy or in combination with Visudyne or other
therapies. Lucentis and Avastin have a material negative impact on Visudyne sales and are expected
to continue to be competitive with Visudyne as those products become available in other countries
or are used off-label.
In addition, Regeneron Pharmaceuticals, Inc. has a product (VEGF Trap) in Phase III clinical trials
which is projected to launch in 2012, NeoVista Inc. has a product (EpiRad90) which has
been CE marked in the EU for marketing and is in Phase III clinical trials in the U.S., and there
are a number of other companies who are developing or may develop competitive therapies targeted
for wet AMD employing different technologies.
Government Regulation
The research and development, preclinical studies and clinical trials, and ultimately, the
manufacturing, marketing and labelling of our products, are subject to extensive regulation by the
FDA and other regulatory authorities in the U.S. and other countries. The U.S. Food, Drug and
Cosmetic Act and its regulations govern, among other things, the testing, manufacturing, safety,
efficacy, labelling, storage, record keeping, approval, clearance, advertising and promotion of our
products. Preclinical studies, clinical trials and the regulatory approval process typically take
years and require the expenditure of substantial resources. If regulatory approval or clearance of
a product is granted, the approval or clearance may include significant limitations on the
indicated uses for which the product may be marketed.
FDA Regulation Approval of Drug Products
Visudyne is regulated in the U.S. as a drug. Our other products in development will also be
regulated as drugs under U.S. law. The steps ordinarily required before a drug may be marketed in
the U.S. include:
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submission of an investigational new drug application (IND) to the FDA, which must
become effective before human clinical trials may commence; |
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adequate and well-controlled human clinical trials to establish the safety and efficacy
of the drug; |
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validation and approval of the manufacturing facilities and process; |
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submission of a new drug application (NDA) or abbreviated new drug application
(ANDA) to the FDA; and |
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FDA approval of the application, including approval of all labelling. |
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Preclinical tests include evaluation of product chemistry and formulation as well as animal studies
to assess the potential safety and efficacy of the product. The results of preclinical testing are
submitted as part of an IND to the FDA. A 30-day waiting period after the filing of each IND is
required prior to the commencement of clinical testing in humans. In addition, the FDA may, at any
time during this 30-day period, or anytime thereafter, impose a clinical hold on proposed or
ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or
recommence without FDA authorization.
Clinical trials to support NDAs are typically conducted in three sequential phases, but the phases
may overlap. In Phase I, the initial introduction of the drug into healthy human subjects or
patients, the drug is tested to assess
metabolism, pharmacokinetics, drug interaction, bioavailability and bioequivalence,
pharmacodynamics and safety, including side effects associated with increasing doses. Phase II
usually involves studies in a limited patient population to:
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assess the efficacy of the drug in specific, targeted indications; |
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assess dosage tolerance and optimal dosage; and |
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identify possible adverse effects and safety risks. |
If a compound is found to be potentially effective and to have an acceptable safety profile in
Phase II evaluations, Phase III trials are undertaken to further demonstrate clinical efficacy and
to further test for safety within an expanded patient population at multiple study sites.
After successful completion of the required clinical testing, generally an NDA is submitted. Under
the Prescription Drug User Fee Act, the FDA aims to review the NDA within 10 months if it is a
standard application, or within six months if it is a priority review application. If the FDA
evaluations of the NDA and the manufacturing facilities are favorable, the FDA may issue either an
approval letter or an approvable letter. The approvable letter usually contains a number of
conditions that must be met to secure final FDA approval of the NDA. When, and if, those
conditions have been met to the FDAs satisfaction, the FDA will issue an approval letter. If the
FDAs evaluation of the NDA or manufacturing facility is not favorable, the FDA may refuse to
approve the NDA or issue a non-approvable letter that often requires additional testing or
information.
FDA Regulation Approval of Medical Devices
Visudyne requires a laser for light activation of the drug substance after injection. We do not
manufacture or distribute the lasers for use with Visudyne. These lasers are classified as Class
III devices and premarket approval (PMA) applications must be filed for review with the FDA. The
submitted documents must demonstrate that the laser is safe and effective for the proposed use.
After FDA review and panel recommendation, the FDA may then issue an approval letter, an approvable
letter, a not approvable letter or an order denying approval. Once an approval letter is received,
the holder of the approved PMA must submit PMA supplements before making any changes that affect
the safety or effectiveness of the device. Availability of appropriate lasers for use with
Visudyne may affect the use of the drug.
FDA Regulation Post-Approval Requirements
Even if regulatory clearances or approvals for our products are obtained, our products and the
facilities manufacturing our products are subject to continued review and periodic inspections by
the FDA. Each U.S. drug and device-manufacturing establishment must be registered with the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the FDA and must
comply with the FDAs current good manufacturing practices (cGMP), if the facility manufactures
drugs, and quality system regulations (QSRs), if the facility manufactures devices. In complying
with cGMP and QSRs, manufacturers must expend funds, time and effort in the area of production and
quality control to ensure full technical compliance. The FDA stringently applies regulatory
standards for manufacturing.
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The FDA also regulates labelling and promotional activities. Further, we must report adverse
events involving our drugs and devices to the FDA under regulations issued by the FDA.
EU Regulation Approval of Medicinal Product
Visudyne is regulated in the EU as a medicinal product. Drug approval in the EU generally proceeds
under one of three approval procedures: a centralized approval procedure, a decentralized
procedure, or the mutual recognition process. The European Medicines Agency (EMEA) administers
the centralized drug approval process and, as of 2005, has had mandatory and exclusive jurisdiction
over the approval of certain types of medicinal products, including those derived from high
technology processes and biosimilar/biogeneric products. Where the centralized procedure is not
mandatory, a company may pursue approval under a decentralized procedure through which an applicant
may simultaneously request one or more member states to review and approve its marketing
authorization application. Similarly, where a drug product has already been approved by one member
state, a company may request that such approval be recognized by other member states through the
mutual recognition process. Visudyne
was filed with the EMEA and received approval from the European Commission under the centralized
procedure. Accordingly, the marketing of Visudyne in the EU is subject to regulatory requirements
relating to adverse event reporting, and advertising and promotion restrictions.
Healthcare Fraud and Abuse Laws
We are subject to various U.S. federal and state laws pertaining to health care fraud and abuse,
including anti-kickback laws and false claims laws. For example, anti-kickback laws make it illegal
for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange
for, or to induce, the referral of business, including the purchase or prescription of a particular
drug. Due to the breadth of the statutory provisions and the increasing attention being given to
them by law enforcement authorities, it is possible that certain of our practices may be challenged
under anti-kickback or similar laws.
False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare and Medicaid), claims for
reimbursed drugs or services that are false or fraudulent, claims for items or services not
provided as claimed, or claims for medically unnecessary items or services. In addition, the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) created new federal statutes to
prevent healthcare fraud and false statements relating to healthcare matters. The healthcare fraud
statute prohibits knowingly and wilfully executing a scheme to defraud any healthcare benefit
program, including private payors. The false statements statute prohibits knowingly and wilfully
falsifying, concealing or covering up a material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for healthcare benefits, items
or services. Our sales and marketing activities for Visudyne may be subject to scrutiny under these
laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions,
including fines and civil monetary penalties, as well as the possibility of exclusion from federal
and state health care programs (including Medicare and Medicaid). We strive to ensure that our
activities comply with the health care fraud and abuse laws. If the government were to allege
against or convict us of violating these laws, there could be a material adverse effect on our
results of operations.
Additional Regulatory Issues
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a patent that claims a
product, use or method of manufacture covering drugs and certain other products may be extended for
up to five years to compensate the patent holder for a portion of the time required for research
and FDA review of the product. This law also establishes a period of time following approval of a
drug during which the FDA may not accept or approve applications for certain similar or identical
drugs from other sponsors unless those sponsors provide their own safety and effectiveness data.
We cannot provide assurance that we will be able to take advantage of either the patent term
extension or marketing exclusivity provisions of this law.
Various aspects of our business and operations are regulated by a number of other governmental
agencies, including the U.S. Occupational Safety and Health Administration.
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Third-Party Reimbursement
U.S. governmental and private insurance programs, such as Medicare, Medicaid, health maintenance
organizations and private insurers, known collectively as third-party payors, fund the cost of a
significant portion of medical care in the U.S. Under certain U.S. governmental insurance
programs, a healthcare provider is reimbursed a fixed sum for services and products, including
drugs used during the course of rendering healthcare services to patients, regardless of the actual
cost for such services or products. Governmental imposed limits on reimbursement to hospitals,
physicians and other health care providers have significantly impacted spending budgets and
purchasing patterns. Private third-party reimbursement plans are also developing increasingly
sophisticated methods of controlling health care costs through redesign of benefits and exploration
of more cost-effective methods of delivering health care. In general, these governmental and
private measures have caused health care providers to be more selective in the purchase of medical
products.
In the U.S., Visudyne is reimbursed by governmental and private third-party payors. Because many
payors model their policies after the Medicare program, which covers eligible elderly and disabled
individuals, the policies under Medicare Part B for physician services and outpatient care, among
other healthcare services, are particularly
significant for Visudyne. Medicare Part B provides for payment of outpatient drugs that are
furnished incident to a physicians service. Generally, incident to drugs are covered only if
they satisfy certain criteria, including that they have been approved by the FDA, they are of the
type that is not usually self-administered by the patient and they are reasonable and necessary for
a medically accepted diagnosis or treatment. It is also covered under other governmental programs,
such as those administered by the Department of Veterans Affairs and state drug assistance
programs.
Beginning in the second half of 2010, we will assume responsibility from Novartis with respect to
Visudyne as it relates to governmental programs that impose reporting and rebate responsibilities
on drug manufacturers. These programs subject us to governmental audits and penalties and/or
sanctions if we are found to be out of compliance with the applicable responsibilities. For
example, under the Medicare Program, manufacturers are responsible for reporting on a quarterly
basis their average sales price (ASP) for certain outpatient drugs, which would include Visudyne.
Under Medicare Part B, providers receive reimbursement based on a payment methodology that is
derived from a percentage of manufacturers ASP, which we report. In addition, under the Medicaid
Drug Rebate Program, manufacturers must report certain pricing for covered outpatient drugs and
also are responsible for a rebate to state governments for those covered drugs based on utilization
by patients enrolled in their state Medicaid program. States may also require manufacturers to pay
supplemental rebates in addition to those required by Medicaid. Under the Medicaid rebate program,
we will pay certain states a rebate for each unit of Visudyne reimbursed by Medicaid. The amount of
the rebate will be set by law as a minimum percentage of the average manufacturer price (AMP) of
Visudyne, or if it is greater, the difference between AMP and the best price available from us. AMP
and best price are calculated by manufacturers using formulas that take into account certain
outpatient sales, and associated rebates and price concessions, among other things, unless
excluded. The rebate amount will be determined for each quarter based on our reports of AMP and
best price for Visudyne. The rebate amount also includes an inflation adjustment if AMP increases
faster than inflation. Related to our participation in the Medicaid rebate program for Visudyne is
a requirement that we extend comparable discounts under the Public Health Service (PHS)
pharmaceutical pricing program to a variety of covered entities, including community health clinics
and other entities that receive health services grants from the PHS, as well as hospitals that
serve a disproportionate share of Medicare and Medicaid beneficiaries.
We also make Visudyne available to authorized users of the Federal Supply Schedule (FSS). As a
result of the Veterans Health Care Act of 1992, U.S. federal law requires that we offer deeply
discounted FSS contract pricing for purchases by the U.S. Department of Veterans Affairs, the U.S.
Department of Defense, the U.S. Coast Guard and the PHS (including the Indian Health Service) in
order for U.S. federal funding to be available for reimbursement of Visudyne under the Medicaid
program or purchase of Visudyne by these four federal agencies and certain federal grantees. FSS
pricing to these four U.S. federal agencies must be equal to or less than the Federal Ceiling
Price, which is calculated based on a percentage of the prior years weighted average price paid to
the manufacturer by wholesalers for drug ultimately sold to non-federal purchasers, also known as
the Non-Federal Average Manufacturer Price. Finally, we are required to disclose in our FSS
contract proposal all commercial pricing that is equal to or less than our proposed FSS pricing,
and subsequent to award of an FSS contract, we are required to monitor certain commercial price
reductions and extend commensurate price reductions to the U.S. government.
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Both within and outside the U.S., significant uncertainty exists as to the reimbursement status of
both existing and newly approved health care products, and we cannot provide assurance that
adequate third-party reimbursement will be available. Limitations imposed by governmental and
private insurance programs and the failure of certain third-party payors to fully, or substantially
reimburse healthcare providers for the use of the product could seriously harm our business.
Liability and Product Recall
The testing, manufacture, marketing and sale of human pharmaceutical products entail significant
inherent risks of allegations of product defects. The use of our products in clinical trials and
the sale of such products may expose us to liability claims alleged to result from the use of such
products. These claims could be made directly by patients or consumers, healthcare providers or
others selling the products. In addition, we are subject to the inherent risk that a governmental
authority may require the recall of our product. We currently carry clinical trials and product
liability insurance in amounts that we consider to be consistent with industry standards to insure
against certain claims that could arise during the clinical studies or commercial use of our
products. Such coverage and the amount and scope of any coverage obtained in the future may be
inadequate to protect us in the event of a successful product
liability claim, and there can be no assurance that the amount of such insurance can be increased,
renewed or both. A successful product liability claim could materially adversely affect our
business, financial condition or results of operations.
Further, liability claims relating to the use of our products or a product recall could negatively
affect our ability to obtain or maintain regulatory approval for our products. We have agreed to
indemnify our distributors against certain potential liabilities relating to the manufacture and
sale of Visudyne. See Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital Resources.
Research and Development Costs
During the years ended December 31, 2009, 2008 and 2007, our total company-sponsored research and
development expenses were $28.6 million, $29.6 million and $37.5 million, respectively. See the
section entitled Our Products in Development above and Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Human Resources
As of February 26, 2010, we had approximately 142 employees, 83 of whom were engaged in research,
development, clinical and regulatory affairs, medical devices, manufacturing, distribution, quality
control and assurance, process development and medical affairs, and 59 of whom were engaged in
administration, business development, finance, information technology, human resources, legal and
sales. None of our employees belong to a labour union and we consider our relationship with our
employees to be good.
Corporate Information
QLT was formed in 1981 under the laws of the Province of British Columbia. Our principal executive
office is located at 887 Great Northern Way, Suite 101, Vancouver, British Columbia, Canada, and
our telephone number is 604-707-7000.
We make available free of charge on or through our Internet website our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those
reports as soon as reasonably practicable after they are electronically filed with, or furnished
to, the SEC. Our internet address is www.qltinc.com. This website address is intended to be an
inactive, textual reference only; none of the material on this website is part of this Report.
Copies of our annual reports on Form 10-K will be furnished without charge to any person who
submits a written request directed to the attention of our Secretary, at our offices located at
101-887 Great Northern Way, Vancouver, B.C., Canada V5T 4T5.
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In addition to the other information included in this Report, you should consider carefully the
following factors, which describe the risks, uncertainties and other factors that may materially
and adversely affect our business, products, financial condition and operating results. There are
many factors that affect our business and our results of operations, some of which are beyond our
control. The following is a description of important factors that may cause our actual results of
operations in future periods to differ materially from those currently expected or discussed in
forward-looking statements set forth in this Report relating to our financial results, operations
and business prospects. Except as required by law, we undertake no obligation to update any such
forward-looking statements to reflect events or circumstances after the date on which it is made.
Visudyne is currently our only commercial product. Accordingly, any decrease in sales of Visudyne
would harm our business.
On October 1, 2009, we sold QLT USA, including its Eligard product line. Prior to October 1, 2009,
our revenues comprised net product revenues from sales of Visudyne and net product revenues and
royalties from sales of Eligard. With the completion of the sale of QLT USA, Visudyne is our only
commercial product. Accordingly, any decrease in Visudyne product sales would harm our business
and cause our financial results to be below expectations.
In 2008, worldwide sales of Visudyne decreased 34.0% from the prior year, primarily due to the
approval and reimbursement in Europe of alternative therapeutics for AMD. In 2009, worldwide sales
of Visudyne decreased 25.5% from 2008. We cannot assure you that Visudyne product sales will not
continue to decrease. Visudyne may be rendered obsolete or uneconomical by competitive changes,
including generic competition. Visudyne sales could also be adversely affected by other factors,
including:
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product manufacturing or supply interruptions or recalls, |
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the development of competitive products by other companies, |
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developing and maintaining effective sales and marketing capabilities, |
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marketing or pricing actions by our competitors or regulatory authorities, |
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changes in the reimbursement by third-party payors, |
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changes in or withdrawal of regulatory approval for or the labelling of Visudyne, |
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failure of ongoing clinical trials
to meet study endpoints, including our RADICAL clinical trial, |
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disputes relating to patents or other intellectual property rights, |
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disputes with our licensees, and |
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changes in laws and regulations that adversely affect our ability to market Visudyne. |
Receipt of a significant amount of the consideration paid for QLT USA, including the Eligard
product line, is largely dependent on the success of Eligard in the U.S., Canada and in Europe,
which is not within our control. If we do not receive all or a
material portion of the contingent consideration our cash position
will suffer. Furthermore, an unfavorable change in the fair value of
our contingent consideration as a result of changes in estimates
related to amount and timing of future cash flows, and the applicable
discount rate may adversely impact our earnings.
Under the stock purchase agreement with Tolmar for the sale of QLT USA, including its Eligard
product line, we received $20.0 million on closing and will receive $10.0 million on or before
October 1, 2010 and up to an additional $200.0 million, payable on a quarterly basis in amounts
equal to 80% of the royalties paid under the license agreements with each of Sanofi and MediGene
for the commercial marketing of Eligard in the U.S., Canada and Europe until the earlier of
receiving the full $200.0 million or October 1, 2024. These payments represent and will for some
time represent a substantial source of our funds. Since our receipt of the contingent
consideration under the stock purchase agreement depends, in large part, on the success of Eligard,
our receipt of the contingent consideration may also be adversely affected by, among other things:
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lower than expected Eligard sales, |
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product manufacturing or supply interruptions or recalls, |
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the development of competitive products, including generics, by other companies that
compete with Eligard, |
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marketing or pricing actions by competitors or regulatory authorities, |
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changes in the reimbursement or substitution policies of third-party payors, |
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changes in or withdrawal of regulatory approvals, |
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disputes relating to patents or other intellectual property rights, |
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disputes with Eligard marketing licensees, and |
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changes in laws or regulations that adversely affect the ability to market Eligard. |
Furthermore, the fair value of
our contingent consideration reflected on our balance sheet is based on future Eligard sales
estimated by us utilizing external market research to estimate market size, to which we apply
market share and pricing assumptions based on historical sales data and expected future competition.
We do not have access to the Sanofi and MediGene sales forecasts for Eligard and, therefore, our
forecasts of Eligard sales may be inaccurate.
As of March 10, 2010, we have received $18.7 million of the up to $200.0 million payable under the
stock purchase agreement. While there are operational covenants in the stock purchase agreement
intended to ensure that we receive the total consideration provided for under the stock purchase
agreement prior to October 1, 2024, we do not have a security interest in the license agreements
and there is no guarantee that we will actually receive the total consideration. If we do not
ultimately receive all or a material portion of the consideration
provided for under the stock
purchase agreement due to the risks noted above or for any other reason, our cash position will
suffer.
The continued commercialization of Visudyne in the U.S. is substantially dependent on our ability
to develop and maintain effective sales and marketing capabilities. If we are unable to develop and
maintain effective sales and marketing capabilities, our ability to generate revenues from the sale
of Visudyne in the U.S. may be harmed.
Under the Amended PDT Agreement with Novartis, effective January 1, 2010 we obtained exclusive U.S.
rights to the Visudyne patents to sell and market Visudyne in the U.S. Visudyne is currently our
only commercial product, and the successful continued commercialization of Visudyne in the U.S.
depends on our ability to develop and maintain an effective sales and marketing organization in the
U.S. We have established an in-house sales and marketing organization for U.S. sales of Visudyne
through our U.S. wholly-owned subsidiary, QLT Ophthalmics, Inc. However, we have limited experience
in the sales, marketing and distribution of commercial products. Developing an internal sales
force and infrastructure is expensive and time-consuming, and may result in unforeseen costs,
expenses and delays. Even if we are successful in developing an internal sales force, we cannot
assure you that our sales force will be sufficient in size, scope or effectiveness to compete
successfully in the marketplace and maintain adequate sales levels of Visudyne in the U.S. The
success of our marketing and promotional strategies will in part depend on our ability to secure
contracts with third parties and recruit and retain the caliber of sales representatives necessary
to implement our sales and marketing strategy. If we are unable to successfully develop and
maintain the infrastructure to market and commercialize Visudyne in the U.S., our ability to
generate revenues may be harmed.
We have limited experience marketing and selling products. The marketing and sale of Visudyne in
the U.S. is subject to extensive regulation and aggressive government enforcement. Failure to
comply with applicable laws and regulations could have a material adverse effect on our business.
Our activities relating to the sale and marketing of Visudyne in the U.S. are subject to extensive
regulation under the U.S. Federal Food, Drug and Cosmetic Act and other federal statutes and
associated regulations. These laws and regulations limit the types of marketing claims and other
communications we can make regarding marketed products. We are also subject to various U.S. federal
and state laws pertaining to healthcare fraud and abuse, including anti-kickback and false claims
laws. Anti-kickback laws prohibit payments of any kind intended to induce physicians or others
either to purchase or arrange for or recommend the purchase of healthcare products or services,
including the selection of a particular prescription drug. These laws make certain business
practices that are relatively common in other industries illegal in our industry. False claims laws
prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to
third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that
are false or fraudulent. Federal and state governments have asserted very broad interpretations of
these laws against pharmaceutical manufacturers, even though these manufacturers did not directly
submit claims for reimbursement to government payors. In addition, regulation is not static and
regulatory authorities, including the FDA, evolve in their staff, interpretations and practices and
may impose more stringent requirements than currently in effect, which may adversely affect our
sales and marketing efforts. Violations of the above laws may be punishable by criminal and/or
civil sanctions, including fines and civil monetary penalties, as well as the possibility of
exclusion from federal health care programs, including Medicare and Medicaid. Many pharmaceutical
and biotechnology companies have in recent years been the target of lawsuits and investigations
alleging violations of government regulation, including claims asserting violations of the federal
False Claims Act, the federal anti-kickback statute, and other violations in connection with
off-label promotion of products, pricing, and government price reporting. While we will strive to
comply with these complex requirements, the interpretation of these laws as applied to particular
sales and marketing practices continues to evolve, and it is possible that our sales and marketing
practices might be challenged. Further, although we expect to take measures to prevent potential
challenges, we cannot guarantee that such measures will protect us from future challenges, lawsuits
or investigations. Even if such challenges are without merit, they could cause adverse publicity,
divert management
attention and be costly to respond to, and thus could have a material adverse effect on our
business, including impact on our stock price.
25
Our commercial success depends in part on the success of third parties to market our products,
including Visudyne.
Our strategy for the development and commercialization of our products, including our current
product Visudyne, has included entering into marketing arrangements with third parties, and we may
in the future implement a similar strategy with respect to any future products. However, the amount
and timing of resources to be devoted to these activities generally are not under our control. For
example, under the Amended PDT Agreement, Novartis is responsible for marketing and sales of
Visudyne outside of the U.S. A significant portion of our revenue depends on the efforts of
Novartis to market and sell Visudyne outside of the U.S. and our growth is dependent in part on the
success of Novartis in performing its responsibilities. Further, Novartis is not prevented from
commercializing non-PDT products that could be competitive with Visudyne. Novartis entered into a
license arrangement with Genentech in which Novartis has been granted a license to the rights
outside of the U.S. to Lucentis, a product that has been approved for the treatment of wet AMD, and
is a competing product to Visudyne.
To the extent such third parties do not perform adequately under our agreement with them, or do not
comply with applicable laws or regulations in performing their obligations, the development and
commercialization of our products, including Visudyne, may be delayed, may become more costly to us
or may be terminated in the applicable territory, and may require us to expend significant amounts
of time and money to find new collaborators and structure alternative arrangements.
Our revenues depend on coverage and reimbursement from third party payors and pricing, and if third
party payors reduce or refuse coverage or reimbursement or if prices are reduced, the use and sales
of our products will suffer, we may not increase our market share, and our revenues and
profitability will suffer.
The continuing efforts of governmental and third-party payors to contain or reduce the costs of
health care may negatively affect the sale of Visudyne and our product candidates. Our ability to
commercialize Visudyne and our product candidates successfully will depend, in part, on the
timeliness of and the extent to which adequate coverage and reimbursement for the cost of such
products and related treatments is obtained from government health administration authorities,
private health insurers and other organizations in the U.S. and foreign markets. Product sales,
attempts to gain market share or introductory pricing programs of our competitors could require us
to lower our prices, which could adversely affect our results of operations. We may be unable to
set or maintain price levels sufficient to realize an appropriate return on our investment in
product development. We may also be subject to price reductions as a result of government pricing
rules and regulations which may impact both our financial condition and future revenues.
Significant uncertainty exists as to the coverage and reimbursement status of newly approved
therapeutic products or newly approved product indications.
In both the U.S. and some non-U.S. jurisdictions, there have been a number of legislative and
regulatory proposals to change the healthcare system in ways that could affect our ability to sell
our products profitably. In the United States, new legislation and regulations have been and likely
will continue to be proposed and adopted at the federal and state levels that could result in
significant changes to the healthcare system, either nationally or at the state level. For example,
effective January 2004, the Medicare Prescription Drug, Improvement and Modernization Act, changed
the methodology used to calculate reimbursement for drugs such as Visudyne that are administered in
physicians offices in a manner intended to reduce the amount that is subject to reimbursement. The
legislation also directs the Secretary of the Department of Health and Human Services (HHS) to
contract with procurement organizations, who would purchase physician-administered drugs from
manufacturers, provide them to physicians and also bill the Medicare program. The new competitive
acquisition program offered physicians an alternative to purchasing from manufacturers, which some
physicians found advantageous. The competitive acquisition program was postponed for 2009 and has
not yet been resumed, but may result in reductions to future amounts that will be paid for
physician-administered drugs. In addition, the Centers for Medicare & Medicaid Services (CMS),
the agency within HHS that administers Medicare and is responsible for Medicare reimbursement of
Visudyne, acting directly or through its agents may determine not to cover particular drugs or
particular indications or otherwise place limitations on coverage. The reimbursement environment
for Visudyne may continue to change in the future and become more challenging due to, among other
reasons, new policies of the current U.S. administration or new health care legislation passed by
the U.S. Congress. The result may be a reduction in the pricing of or demand for Visudyne. To the
extent that private insurers or managed care programs follow governmental coverage and payment
developments, the adverse effects of changes to governmental programs may be magnified. At this
time, a few states have already enacted health care reform legislation, and the federal government
and individual state governments
continue to consider health care reform policies and legislation. We cannot predict how future
measures would impact Visudyne or our future products. Our results of operations could be
materially adversely affected by measures to reduce Medicare drug coverage, or by any other future
healthcare reform measures that would reduce amounts that other governmental or private insurers
will pay for drugs.
26
Our applications or re-applications for coverage and reimbursement for any of our products may not
result in approvals and our current reimbursement approvals for Visudyne and our other products may
be reduced or reversed in whole or in part. If we were to have coverage or reimbursement reduced
or reversed, the market for the affected product may be materially impaired and could materially
harm our business and future revenues from that product. For example, while we believe that the
results seen in the Visudyne in occult (VIO) study did not contradict results seen in prior
studies, because the VIO study failed to meet its primary endpoint, there is a risk that
reimbursement for Visudyne in the occult form of wet AMD could be re-evaluated in the U.S. and
elsewhere by the applicable governmental authorities. In April 2007, after reviewing the results in
the VIO study, the Committee for Medicinal Products for Human Use (CHMP) recommended to the
European Commission that the indication of the use of Visudyne in the treatment of occult subfoveal
CNV, secondary to AMD be deleted in Europe. In June 2007, the European Medicines Agency (EMEA)
endorsed the recommendation by CHMP to delete the indication of Visudyne in the treatment of occult
subfoveal CNV from the label for Visudyne in the EU. As a result, reimbursement for Visudyne in
the occult form of wet AMD has ceased in most European countries.
Product development is a long, expensive and uncertain process, and we may terminate one or more of
our development programs.
We may determine that certain product candidates or programs do not have sufficient potential to
warrant the allocation of resources. Accordingly, we may elect to terminate one or more of our programs for such
product candidates. If we terminate a clinical program in which we have invested significant
resources, our prospects may suffer, as we will have expended resources on a program that may not
provide a return on our investment and may have missed the opportunity to have allocated those
resources to potentially more productive uses.
Our current and planned clinical trials may not begin on schedule, or at all, and may not be
completed on schedule, or at all.
The commencement or completion of any of our clinical trials may be delayed or halted for numerous
reasons, including, but not limited to, the following:
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the FDA or other regulatory authorities do not approve a clinical trial protocol or a
clinical trial, or place a clinical trial on hold; |
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the data and safety monitoring committee of a clinical trial recommends that a trial be
placed on hold or suspended; |
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patients do not enroll in clinical trials at the rate we expect; |
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patients are not followed-up at the rate we expect; |
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patients experience adverse side effects or events related to our products; |
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patients die or suffer adverse medical effects during a clinical trial for a variety of
reasons, including the advanced stage of their disease or medical problems, which may or may
not be related to our product candidates; |
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regulatory inspections of our clinical trials or manufacturing facilities, which may,
among other things, require us to undertake corrective action or suspend or terminate our
clinical trials if investigators find us not to be in compliance with regulatory
requirements; |
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investigator sites are unable to commence a clinical trial on schedule or at all for
reasons beyond our control, |
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the failure of our manufacturing process to produce finished products which conform to
design and performance specifications; |
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changes in governmental regulations or administrative actions; |
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the interim results of clinical trials are inconclusive or negative; |
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pre-clinical or clinical data is interpreted by third parties in different ways; |
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our clinical trial expenditures are constrained by our budgetary considerations; or |
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our trial design, although approved, is inadequate for demonstration of safety and/or
efficacy. |
27
Clinical trials may require the enrolment of large numbers of patients, and suitable patients may
be difficult to identify and recruit. Patient enrollment in clinical trials and completion of
patient follow-up in clinical trials depend on many factors, including the size of the patient
population, the nature of the trial protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study and patient compliance. For example, patients may be discouraged
from enrolling in our clinical trials if the trial protocol requires them to undergo extensive
post-treatment procedures to assess the safety and effectiveness of our products, or they may be
persuaded to participate in contemporaneous trials of competitive products. Delays in patient
enrollment or failure of patients to continue to participate in a study may cause an increase in
costs and delays or result in the failure of the trial.
Our clinical trial costs will increase if we have material delays in our clinical trials or if we
need to perform more or larger clinical trials than planned. Adverse events during a clinical trial
could cause us to repeat a trial, terminate a trial or cancel the entire program.
If our process related to product development, and in particular the development of our punctal
plug drug delivery technology, does not result in an approved and commercially successful product,
our business could be adversely affected.
We focus our research and development activities on areas in which we have particular strengths.
Currently, we are focusing our efforts primarily on the development of our punctal plug drug
delivery technology. The outcome of any development program is highly uncertain, notwithstanding
how promising a particular program may seem. Success in preclinical and early-stage clinical trials
may not necessarily translate into success in large scale clinical trials. Further, to be
successful in clinical trials, increased investment will be necessary, and that could adversely
affect our short-term profitability.
In addition, we will need to obtain and maintain regulatory approval in order to market new
products. Notwithstanding the outcome of clinical trials for new products, regulatory approval may
not be achieved. The results of clinical trials are susceptible to varying interpretations that may
delay, limit or prevent approval or result in the need for post-marketing studies. Changes in
regulatory policy for product approval during the period of product development and review by
regulators of a new application may cause delays or rejection. Even if we receive regulatory
approval, this approval may include limitations on the indications for which we can market the
product.
Our success depends largely on the successful commercialization of our technology, and in
particular our drug/device combination punctal plug drug delivery technology.
The successful commercialization of our technology, and in particular our punctal plug drug
delivery technology, is crucial for our success. Successful product development in the
pharmaceutical industry is highly uncertain and very few research and development projects produce
a commercial product. Principally, the risks and uncertainties involved in commercializing a
product in this industry include the following:
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Future clinical trial results may show that some or all of our technology is not safe or
effective, |
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We and our strategic collaborators may face significant or unforeseen difficulties in
manufacturing our products. These difficulties may become apparent when we or our strategic
collaborators manufacture the products on a small scale for clinical trials and regulatory
approval or may only become apparent when scaling-up the manufacturing to commercial scale, |
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We may need to obtain licenses under third-party patents which can be costly, or may not
be available at all, |
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Even if our products are successfully developed, receive all necessary regulatory
approvals and are commercially produced, there is no guarantee that there will be market
acceptance of them or that they will not cause unanticipated side effects in patients, or |
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Intellectual property rights could be challenged by third parties or we could be found to
be infringing on intellectual property rights of third parties. |
Our ability to achieve market acceptance for any of our products will depend on a number of
factors, including whether or not competitors may develop technologies which are superior to or
less costly than our products, and whether governmental and private third-party payors provide
adequate coverage and reimbursement for our products, with the result that our products, even if
they are successfully developed, manufactured and approved, may not generate significant revenues.
28
If we are unsuccessful in dealing with any of these risks, or if we are unable to successfully
commercialize our technology for some other reason, it would likely seriously harm our ability to
generate revenue.
We face intense competition, which may limit our commercial opportunities and our ability to
generate revenues.
The biopharmaceutical industry is highly competitive and is characterized by rapidly evolving
technology. Competition in our industry occurs on many fronts, including developing and bringing
new products to market before others, developing new technologies to improve existing products,
developing new products to provide the same benefits as existing products at less cost, developing
new products to provide benefits superior to those of existing products, and acquiring or licensing
complementary or novel technologies from other pharmaceutical companies or individuals.
We face intense competition against Visudyne, as well as our technology under clinical development.
We may be unable to contend successfully with current or future competitors. Our competitors
include major pharmaceutical and biopharmaceutical companies, many of which are large,
well-established companies with access to financial, technical and marketing resources
significantly greater than ours and substantially greater experience in developing and
manufacturing products, conducting preclinical and clinical testing and obtaining regulatory
approvals. Some of our competitors are also our collaborators. For example, Novartis, which,
pursuant to the Amended PDT Agreement, has the marketing and sales rights to our Visudyne product
outside of the U.S., also has rights to market Lucentis, a product that is competitive with
Visudyne outside of the U.S. Our competitors may develop or acquire new or improved products to
treat the same conditions as our products treat, or may make technological advances that reduce
their cost of production so that they may engage in price competition through aggressive pricing
policies to secure a greater market share to our detriment. Our commercial opportunities will be
reduced or eliminated if our competitors develop or acquire and market products that are more
effective, have fewer or less severe adverse side effects, or are less expensive than our products.
Competitors also may develop or acquire products that make our current or future products
obsolete. In connection with our technology under clinical development, including our punctal
plug drug delivery technology, our competitors may develop or obtain patent protection for products
earlier than us, design around patented technology developed by us, obtain regulatory approval for
such products before us, or develop more effective or less expensive products than us.
Any of these events could have a significant negative impact on our business and financial results,
including reductions in our market share, revenues and gross margins.
We have undertaken significant strategic and organizational changes, including the divestment of
certain core and non-core assets to focus on the ocular therapeutic area. These changes and the
transactions we completed carry certain risks which could have a material adverse effect on our
business.
In the last three years, we have made significant changes to management, organizational structure
and our business. In January 2008, we announced a significant strategic change to divest certain
core and non-core assets, and to focus the Company on the sale of Visudyne and our clinical
development programs related to our punctal plug delivery technology. Since that time, we have
completed our strategic restructuring, including the divestment of Eligard (as part of the sale of
QLT USA), Aczone and Atrigel and the sale of the land and building comprising our Canadian
headquarters. We have also restructured our agreement with Novartis under the Amended PDT
Agreement pursuant to which, among other things, we obtained exclusive U.S. rights to the Visudyne
patents to sell and market Visudyne in the U.S.
Transactions such as these may result in disputes regarding representations and warranties,
indemnities, future payments or other matters. If disputes are resolved unfavorably, our financial
condition and results of operations may be adversely affected and we may not realize some or all of
the anticipated benefits of these transactions. Disputes relating to these transactions can lead
to expensive and time-consuming litigation and may subject us to unanticipated liabilities or
risks, disrupt our operations, divert managements attention from day-to-day operations, and
increase our operating expenses.
In addition, as a result of the organizational changes our business may be disrupted, employee
morale may be lower and we may lose or be unable to attract and retain key employees. The loss of
key employees or our inability to attract employees could adversely impact our ongoing operations,
including failure to achieve targets and advance our clinical development projects.
29
The future growth of our business may depend in part on our ability to successfully identify,
acquire on favorable terms, and assimilate technologies, products or businesses.
From time to time, we may engage in negotiations to expand our operations and market presence by
future product, technology or other acquisitions, in-licensing and business combinations, joint
ventures or other strategic alliances with other companies, such as our acquisition of ForSight
Newco II, Inc. (now QLT Plug Delivery, Inc.) in October 2007 and our acquisition of QLT091568, a
prodrug of a novel beta blocker, from Othera in December 2009. We may not be successful in
identifying, initiating or completing such negotiations. Competition for attractive product
acquisition or alliance targets can be intense, and we may not succeed in completing such
transactions on terms that are acceptable to us. Even if we are successful in these negotiations,
these transactions create risks, including:
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difficulties in and costs associated with assimilating the operations, technologies,
personnel and products of an acquired business, |
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assumption of known or unknown liabilities or other unanticipated events or
circumstances, |
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acquired/in-licensed technology may not be successfully
developed and commercialized, |
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the potential disruption to our ongoing business, and |
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the potential negative impact on our earnings and cash position. |
Any of these risks could harm our ability to achieve anticipated levels of profitability for
acquired businesses or to realize other anticipated benefits of the transaction.
We may become involved in legal proceedings from time to time and if there is an adverse outcome in
our litigation or other legal actions, our business may be harmed.
We and our subsidiaries may become involved in legal actions in the ordinary course of our
business. Litigation may result in verdicts against us, including excessive verdicts, which may
include a judgment with a significant monetary award, as occurred in 2008 in the litigation with
MEEI, including the possibility of punitive damages, a judgment that certain of our patent or other
intellectual property rights are invalid or unenforceable and, as occurred in 2006 in the
litigation with TAP Pharmaceuticals in the U.S., the risk that an injunction could be issued
preventing the manufacture, marketing and sale of our products that are the subject of the
litigation. Additionally, any such litigation, whether or not successful, may damage our
reputation. Furthermore, we will have to incur substantial expense in defending these lawsuits and
the time demands of such lawsuits could divert managements attention from ongoing business
concerns and interfere with our normal operations.
In addition, the testing, manufacture, marketing and sale of human pharmaceutical products entail
significant inherent risks of allegations of product liability. Our use of such products in
clinical trials and our sale of Visudyne or our product candidates and related medical devices
expose us to liability claims allegedly resulting from the use of these products or devices. These
risks exist even with respect to those products or devices that are approved for commercial sale by
the FDA or applicable foreign regulatory authorities and manufactured in facilities licensed and
regulated by those regulatory authorities.
Our current insurance may not provide coverage or adequate coverage against potential claims,
losses or damages resulting from such litigation. We also cannot be certain that our current
coverage will continue to be available in the future on reasonable terms, if at all. If we were
found liable for any claims in excess of our coverage or outside of our coverage, the cost and
expense of such liability could materially harm our business and financial condition.
If we do not successfully develop and launch replacements for our products that lose patent
protection, our revenues may decline and we may not be able to compete effectively.
Most of our products and technology are covered by patents. Upon the expiration of the patents,
our competitors may introduce products or drug delivery technology, as the case may be, using the
same technology. As a result of this possible increase in competition, we may need to lower our
prices in order to maintain sales of our products or we may lose a competitive advantage and
marketability of our products and technologies. If we fail to develop and successfully launch new
products prior to the expiration of patents for our existing products, our revenue from those
products could decline significantly. We may not be able to develop and successfully launch more
advanced replacement products and/or drug delivery technologies before these and other patents
expire. Competition in the pharmaceutical and biotechnology industry for new products is increasing
and the amount required to be paid to acquire or in-license new products may be prohibitive and
negatively affect our ability to successfully acquire or in-license new products.
30
Our commercial success depends in part on our ability and the ability of our licensors to obtain
and maintain patent protection on technologies, to preserve trade secrets, and to operate without
infringing the proprietary rights of others.
We have applied for and will continue to apply for patents for certain aspects of Visudyne and our
product candidates and technology, including our punctal plug drug delivery technology. Such
applications may not result in the issuance of any patents, and any patents now held or that may be
issued may not provide us with a preferred position with respect to any product or technology. In
addition, patents issued or licensed to us may be challenged successfully. In that event, to the
extent a preferred position is conferred by such patents, any preferred position held by us would
be lost. If we are unable to secure or to continue to maintain a preferred position, Visudyne and
other future products could become subject to competition from the sale of generic versions in
addition to the other competitive products discussed above.
Patents issued or licensed to us may be infringed by the products or processes of other parties.
The cost of enforcing our patent rights against infringers, if such enforcement is required, could
be significant, and the time demands could interfere with our normal operations.
It is also possible that a court may find us to be infringing validly issued patents of third
parties. In that event, in addition to the cost of defending the underlying suit for infringement,
we may have to pay license fees and/or damages and may be enjoined from conducting certain
activities. Obtaining licenses under third-party patents can be costly, and such licenses may not
be available at all. Under such circumstances, we may need to materially alter our products or
processes, may be unable to launch a product or may lose the right to continue to manufacture and
sell a product entirely for a period of time.
Unpatented trade secrets, improvements, confidential know-how and continuing technological
innovation are important to our scientific and commercial success. Although we attempt to, and will
continue to attempt to, protect our proprietary information through reliance on trade secret laws
and the use of confidentiality agreements with our collaborators, licensees, employees and
consultants and other appropriate means, these measures may not effectively prevent disclosure of
our proprietary information, and, in any event, others may develop independently, or obtain access
to, the same or similar information.
In the field of PDT we are dependent on the success and continued supply of third-party medical
device companies with complementary light source and light delivery devices by third party
suppliers.
We currently depend on third-party suppliers, Carl Zeiss-Meditec AG, Lumenis Ltd. and Quantel
Medical Inc. to provide the laser light delivery devices for Visudyne therapy and to service such
devices. Because PDT requires a light source, and in some instances a light delivery system, to be
used in conjunction with our photosensitizers, we are dependent on the success of these medical
device companies in placing and maintaining light sources with the appropriate medical facilities,
in distributing the light delivery systems and servicing such systems as required. These medical
device companies supply such lasers to treating physicians directly, and we do not have a supply or
distribution agreement with these companies for the supply of such devices. Our relationship with
such suppliers, under which we may provide support and assistance to such suppliers, is an informal
collaboration only. If one or more of these medical device companies cease to carry on business, or
if they no longer supply complementary light sources or light delivery systems, or if they or we
are unable to achieve the appropriate placements of light sources and ensure an uninterrupted
supply and ongoing maintenance of light delivery systems to treating physicians, sales of Visudyne
and our revenues from the sale of Visudyne may be materially adversely affected.
The expected lifecycle of the laser light delivery devices for Visudyne therapy is approximately
five to ten years. Therefore, in the coming years, we expect that many of these lasers will need
significant upgrades or will need to be replaced. Customers may decide not to invest in purchasing
a new laser in light of emerging competitive therapies which do not require a medical device and
this could negatively impact our future sales of Visudyne, possibly materially.
If our supply of Visudyne is interrupted, our ability to maintain our inventory levels could suffer
and our future revenues may be reduced.
Any interruption in the supply of finished products could hinder our ability to timely distribute
Visudyne. If we are unable to obtain adequate product supplies to satisfy our customers or
licensees orders, we may lose those orders and our customers or licensees may cancel other orders
and seek monetary compensation or exercise their other remedies permitted under the agreement. In
addition, customers or licensees may decide to stock and sell competing products, which in turn
could cause a loss of our market share and materially adversely affect our revenues. Numerous
factors could cause interruptions in the supply of our finished products, including shortages in
raw material required by our manufacturers, changes in our sources for raw materials or
manufacturing, the failure of our manufacturers to comply with FDA and foreign regulatory
authorities requirements for the manufacture of our product or our product specifications, our
failure to timely locate and obtain regulatory approval for additional or replacement manufacturers
as needed, and conditions affecting the cost and availability of raw materials and manufacturing
processes.
We rely on third-party manufacturers and specialty wholesale distributors and other service
providers for the manufacture and distribution of Visudyne. Any difficulties with such third
parties could delay future revenues from our product sales.
We rely on several third parties in the U.S., Europe and Japan to manufacture Visudyne. If we are
unable to maintain agreements on favorable terms with any of our contract manufacturers, or if we
experience any disruption in the supply of materials required for the manufacture of Visudyne, or
if we fail to timely locate and obtain regulatory approval for additional or replacement
manufacturers as needed, it could impair or prevent our ability to deliver Visudyne on a timely
basis, or at all, or cause delays in our clinical trials and applications for regulatory approvals
which in turn would materially and adversely harm our business and financial results and may result
in claims against us from our licensees of Visudyne.
On January 1, 2010 we became responsible for the distribution, marketing and sale of Visudyne in
the U.S., however, we rely on third parties to distribute Visudyne in the U.S. to end-user
customers. If we are unable to
secure and maintain the necessary agreements with third parties to accomplish this in a timely
manner on terms favorable to us or at all, supply of Visudyne in the U.S. may be adversely
affected.
31
In addition, if any such third party service providers fail to meet their respective contractual
commitments, we may not be able to supply or continue to supply commercial quantities of Visudyne
or conduct certain future clinical testing. Further, any loss of a manufacturer or distributor or
any difficulties that could arise in the manufacturing or distribution process, including any
disputes with third party service providers, could significantly affect our inventories and supply
of Visudyne available for sale. If we are unable to supply sufficient amounts of Visudyne on a
timely basis, our market share could decrease which could materially harm our business.
Inherent uncertainties associated with forecasting product demand and future product launch and
other factors could result in our inventory becoming obsolete or reduced, possibly materially, in
market value.
We maintain levels of inventory of raw materials, intermediates and finished product based upon
various factors including our forecasted demand for products, anticipated commercial launch of new
products, minimum contractual requirements with third party suppliers and as we consider
appropriate for supply chain management and security. Some of our inventory has a limited shelf
life. If our inventory exceeds forecasted demand, or if we are unable to use our inventory or use
it during its shelf life due to delay in or failure to launch a product, withdrawal of a product
from the market or delays in, or termination of agreements for, the marketing and sale of our
products by third parties, our inventory may become obsolete or decline, possibly materially, in
market value. As a result, we may not be able to resell our inventory at a price equal to its full
value or recovery of our costs, or at all.
If the facilities storing our inventory are damaged or destroyed, our ability to meet market demand
for our products could be significantly affected.
We and our contract manufacturers store our product inventory and related raw materials and
intermediates. Any one of these facilities may store a significant amount of our inventory at one
time and or may be the only available source of an item of inventory. Damage or destruction to
these storage facilities, such as from fire, flood, earthquake or other natural disaster or
otherwise, could result in significant write-down to our inventory and may impair our ability to
deliver our commercial products on a timely basis or at all. If the supply of our products is
interrupted, our sales and market share could decrease which could materially harm our business.
If our contract manufacturers fail to comply with FDA and other foreign regulatory requirements or
with our product specifications, we may be unable to meet demand for our products and may lose
potential revenue and be subject to claims from our licensees.
Our ability to commercialize Visudyne or to conduct clinical trials with our product candidates,
either directly or in conjunction with others, depends, in large part, on our ability to have such
products manufactured at a competitive cost and in accordance with FDA and other foreign regulatory
requirements, including FDA cGMPs, as well as our product specifications, which could significantly
adversely affect our product inventories and our ability to have product available for commercial
sale. Our contract manufacturers manufacturing and quality procedures may not achieve or maintain
compliance with applicable FDA and other foreign regulatory standards or product specifications,
and, even if they do, we may be unable to produce or continue to produce commercial quantities of
Visudyne and our other products at an acceptable cost or margin.
If current manufacturing processes are modified, or the source or location of our product supply is
changed (voluntarily or involuntarily), regulatory authorities will require us to demonstrate that
the material produced from the modified or new process or facility is equivalent to the material
used in the clinical trials or products previously approved. Any such modifications to the
manufacturing process or supply may not achieve or maintain compliance with the applicable
regulatory requirements or our product specifications. In many cases, prior approval by regulatory
authorities may be required before any changes can be instituted.
If our contract manufacturers produce one or more product batches that do not conform to FDA or
other regulatory requirements, or our product specifications, or if they introduce changes to their
manufacturing processes, our manufacturing expenses may increase materially, our product
inventories may be reduced to unacceptable levels or entirely, we may lose market share, and/or our
ability to meet demand for Visudyne and our other products may be materially and adversely
impacted, which may cause us to lose potential revenue and become subject to claims from our
licensees.
32
We rely on our employees and consultants to keep our trade secrets confidential.
We rely on trade secrets and unpatented proprietary know-how and continuing technological
innovation in developing and manufacturing our products. We require each of our employees,
contract manufacturers, and certain consultants and advisors to enter into confidentiality
obligations prohibiting them from taking our proprietary information and technology or from using
or disclosing proprietary information to third parties except in specified circumstances. These
agreements may not provide meaningful protection of our trade secrets and proprietary know-how that
is used or disclosed. Despite all of the precautions we may take, people who are not parties to
confidentiality agreements may obtain access to our trade secrets or know-how. In addition, others
may independently develop similar or equivalent trade secrets or know-how.
Visudyne or our product candidates may exhibit adverse side effects that prevent their widespread
use or that necessitate withdrawal from the market.
Even after approval by the FDA and other regulatory authorities, Visudyne or our product candidates
may later exhibit adverse side effects that prevent widespread use or necessitate withdrawal from
the market. Undesirable side effects not previously observed during clinical trials could emerge
in the future. The manifestation of such side effects could materially harm our business. In some
cases, regulatory authorities may require labelling changes that could add warnings or restrict
usage based on adverse side effects seen after marketing a drug.
If we fail to comply with ongoing regulatory requirements, it will materially harm our business.
Visudyne and our product candidates are subject to extensive and rigorous regulation for safety,
efficacy and quality by the U.S. federal government, principally the FDA, and by state and local
governments and by foreign regulatory authorities in jurisdictions in which Visudyne and our
product candidates are or may be sold or used in clinical development. The regulatory clearance
process is lengthy, expensive and uncertain. We may not be able to obtain, or continue to obtain,
necessary regulatory clearances or approvals on a timely basis, or at all, for Visudyne or any of
our product candidates under development, and delays in receipt or failure to receive such
clearances or approvals, the loss of previously received clearances or approvals, or failure to
comply with existing or future regulatory requirements could have a material adverse effect on our
business and our financial condition.
Drugs manufactured or distributed pursuant to the FDAs approval are subject to pervasive and
continuing regulation by the FDA, certain state agencies and various foreign governmental
regulatory agencies such as the EMEA, among others. Manufacturers are subject to inspection by the
FDA and regulatory agencies from other jurisdictions. We must comply with a host of regulatory
requirements that usually apply to drugs marketed in the U.S. and elsewhere, to our clinical
development programs and to investigator sponsored studies that we may from time-to-time support,
including but not limited to labelling regulations, cGMP requirements, adverse event reporting,
pricing rules and restrictions and general prohibitions against promoting products for unapproved
or off-label uses imposed by the FDA and regulatory agencies in other jurisdictions. Our or our
licensees failure to comply with applicable requirements could result in sanctions being imposed
on us and/or our licensees. These sanctions could include warning letters, fines, product recalls
or seizures, penalties, price rebates, injunctions, refusals to permit products to be imported into
or exported out of the U.S. or elsewhere, FDA or other regulatory agency refusal to grant approval
of drugs or to allow us to enter into governmental supply contracts, withdrawals of previously
approved marketing applications and criminal prosecutions.
33
We, our contract manufacturers, all of our suppliers, as well as the suppliers of the medical
lasers required for Visudyne and other PDT therapy, are subject to numerous federal, state and
local laws relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or potentially hazardous
substances. In addition, advertising and promotional materials relating to medical devices and
drugs are, in certain instances, subject to regulation by the Federal Trade Commission, the FDA and
other regulatory agencies in other jurisdictions. We, our contract manufacturers, suppliers and
laser suppliers may be required to incur significant costs to comply with such laws and regulations
in the future, and such laws or regulations may materially harm our business. Unanticipated changes
in existing regulatory requirements, the failure of us, or any of these manufacturers, suppliers or
suppliers to comply with such requirements or the adoption of new requirements could materially
harm our business.
As noted above, all of our contract manufacturers must comply with the applicable FDA cGMP
regulations and requirements of foreign regulatory authorities in jurisdictions in which our
products are sold or used in clinical development, which include quality control and quality
assurance requirements as well as the corresponding maintenance of records and documentation. If
our contract manufacturers do not comply with the applicable cGMP regulations and other applicable
regulatory requirements, the availability of Visudyne for sale could be reduced or we may be unable
to supply product at all for an uncertain amount of time, which could be significant, and we could
suffer delays in the progress of clinical trials for products under development. We do not have
full control over our third-party manufacturers compliance with these regulations and standards.
The loss of a contract manufacturer could have a negative effect on our sales, margins and market
share, as well as our overall business and financial results.
Our use of hazardous materials exposes us to the risk of environmental liabilities, and we may
incur substantial additional costs to comply with environmental laws.
Our research, development and manufacturing activities involve the controlled use of hazardous
chemicals, primarily flammable solvents, corrosives, and toxins. The biologic materials include
microbiological cultures, animal tissue and serum samples. Some experimental and clinical
materials include human source tissue or fluid samples. We are subject to federal,
state/provincial and local government regulation in the use, storage, handling and disposal of
hazardous and radioactive materials. If any of these materials resulted in contamination or
injury, or if we fail to comply with these regulations, we could be subject to fines and other
liabilities, and any such liabilities could exceed our resources. Our insurance may not provide
adequate coverage against potential claims or losses related to our use of any such materials, and
we cannot be certain that our current insurance coverage will continue to be available on
reasonable terms, if at all. In addition, any new regulation or change to an existing regulation
could require us to implement costly capital or operating improvements for which we have not
budgeted.
Our provision for income taxes and effective income tax rate may vary significantly and may
adversely affect our results of operations and cash resources.
Significant judgment is required in determining our provision for income taxes. Various internal
and external factors may have favorable or unfavorable effects on our future provision for income
taxes, income taxes receivable, and our effective income tax rate. These factors include, but are
not limited to, changes in tax laws, regulations and/or rates, results of audits by tax
authorities, changing interpretations of existing tax laws or regulations, changes in estimates of
prior years items, the impact of transactions we complete, future levels of research and
development spending, changes in the overall mix of income among the different jurisdictions in
which we operate, and changes in overall levels of income before taxes. Furthermore, new accounting
pronouncements or new interpretations of existing accounting pronouncements (such as those
described in Note 1- Significant Accounting Policies in Notes to the Consolidated Financial
Statements) can have a material impact on our effective income tax rate.
We file income tax returns and pay income taxes in jurisdictions where we believe we are subject to
tax. In jurisdictions in which we do not believe we are subject to tax and therefore do not file
income tax returns, we can provide no certainty that tax authorities in those jurisdictions will
not subject one or more tax years (since our inception) to examination. Tax examinations are
often complex as tax authorities may disagree with the treatment
of items reported by us, the result of which could have a material adverse effect on our financial
condition and results of operations.
34
If we do not sustain profitability, our stock price may decline.
Although we earned net income for the fiscal years ended December 31, 2008 and December 31, 2009,
we incurred a loss from continuing operations in both years. Further, we incurred net losses for
the years ended December 31, 2005, 2006 and 2007. Our accumulated deficit at December 31, 2009 was
approximately $480.1 million. Although we earned net income for the years ended December 31, 2008
and December 31, 2009, we may incur additional losses in the future. For example, as a result of
the sale of QLT USA on October 1, 2009, we will no longer have revenue and profit from our QLT USA
business reflected on our statements of operations, which may cause us to report net losses in
future periods. If we are unable to sustain profitability in the future, our stock price may
decline.
Our operating results may fluctuate, which may cause our financial results to be below expectations
and the market price of our securities to decline.
Our operating results may fluctuate from period to period for a number of reasons, some of which
are beyond our control. A revenue shortfall or increase in operating expenses could arise from any
number of factors, such as:
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lower than expected revenues from sales of Visudyne, |
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changes in pricing, pricing strategies or reimbursement levels for Visudyne, |
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seasonal fluctuations, particularly in the third quarter due to decreased demand for
Visudyne in the summer months, |
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high levels of marketing and advertising expenses for Visudyne or the launch of
additional competitors to Visudyne, |
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fluctuations in currency exchange rates, |
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higher than expected operating expenses as a result of increased costs associated with
the development or commercialization of Visudyne and our product candidates, |
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costs of establishing an internal sales and marketing team and infrastructure for the
distribution, sale and marketing of Visudyne in the U.S., and |
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increased operating expenses as a result of product, technology or other acquisitions or
business combinations. |
Even a relatively small revenue shortfall may cause a periods results to be below our expectations
or projections, which in turn may cause the market price of our securities to drop significantly
and the value of your investment to decline.
The market price of our common shares is extremely volatile and the value of an investment in our
common shares could decline.
The market prices for securities of biotechnology companies, including QLT, have been and are
likely to continue to be extremely volatile. As a result, investors in companies such as ours
often buy at high prices only to see the price drop substantially a short time later, resulting in
an extreme drop in value in the holdings of these investors. Trading prices of the securities of
many biotechnology companies, including us, have experienced extreme price and volume fluctuations
which have, at times, been unrelated to the operating performance of the companies whose securities
were affected. Some of the factors that may cause volatility in the price of our securities
include:
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announcements of technological innovations or new products by us or our competitors, |
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results of our research and development programs, |
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litigation commenced against us, |
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regulatory developments or delays concerning our products, |
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quarterly variations in our financial results, |
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business and product market cycles, |
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fluctuations in customer requirements, |
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the availability and utilization of manufacturing capacity and our ability to continue
to supply Visudyne, |
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the timing and amounts of contingent consideration or royalties paid to us by third
parties, and |
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issues with the safety or effectiveness of our products. |
35
The price of our common shares may also be adversely affected by the estimates and projections of
the investment community, general economic and market conditions, and the cost of operations in our
product markets. In 2008,
general worldwide economic conditions experienced a downturn due to the sequential effects of the
subprime lending crisis, general credit market crisis, collateral effects on the finance and
banking industries, volatile energy costs, concerns about inflation, slower economic activity,
decreased consumer confidence, reduced corporate profits and capital spending, adverse business
conditions and liquidity concerns. These economic conditions largely continued in 2009 and early
2010. The price of our common shares could decrease if our business, financial condition and
results of operations are negatively impacted, or if investors have concerns that our financial
position may be impacted, by a worldwide macroeconomic downturn. These factors, either
individually or in the aggregate, could result in significant variations in the trading prices of
our common shares.
We may need additional capital in the future, and our prospects for obtaining it are uncertain.
Although our recent divestitures generated significant cash, we have not yet received and may not
ultimately ever receive all of the contingent consideration payable to us for the sale of QLT USA
and, going forward, our business may not generate the cash necessary to fund our operations and
anticipated growth. The amount required to fund our operating expenses will depend on many
factors, including the status of competitive products, the success of our research and development
programs, the extent and success of any collaborative research arrangements, and the results of
product, technology or other acquisitions or business combinations. We could seek additional funds
in the future from a combination of sources, including product licensing, joint development, sale
of assets and other financing arrangements. In addition, we may issue debt or equity securities if
we determine that additional cash resources could be obtained under favorable conditions or if
future development funding requirements cannot be satisfied with available cash resources. The
availability of financing will depend on a variety of factors such as market conditions, the
general availability of credit and the availability of credit to our industry, the volume of
trading activities, our credit ratings and credit capacity, as well as the possibility that
customers or lenders could develop a negative perception of our long- or short-term financial
prospects if we incur large investment losses or if the level of our business activity decreases
due to a market downturn. Disruptions, uncertainty or volatility in the capital and credit markets
may also limit our access to capital required to operate our business. As a result of any or all
of these factors, we may not be able to successfully obtain additional financing on favourable
terms, or at all.
We believe that we were a passive foreign investment company for the taxable year ended December
31, 2009, which could result in adverse United States federal income tax consequences to U.S.
shareholders.
Based on the price of our common shares and the composition of our assets, we believe that we were
a passive foreign investment company (PFIC) for United States federal income tax purposes for
the taxable year ended December 31, 2009. We believe that we were also a PFIC for the taxable year
ended December 31, 2008, and we may be a PFIC in future years. A non-U.S. corporation generally
will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which,
after applying relevant look-through rules with respect to the income and assets of subsidiaries,
either 75% or more of its gross income is passive income or 50% or more of the average value of
its assets consists of assets that produce, or are held for the production of, passive income. If
we were a PFIC for any taxable year during a U.S. Holders holding period for our common shares,
certain adverse United States federal income tax consequences could apply to such U.S. Holder, as
that term is defined in Item 7, Managements Discussion and Analysis of Financial Condition and
Results of OperationsCertain Canadian and U.S. Federal Income Tax Information for U.S.
ResidentsU.S. Federal Income Tax InformationU.S. Holders.
If we fail to manage our exposure to global financial, securities market and foreign exchange risk
successfully, our operating results and financial statements could be materially impacted.
The primary objective of our investment activities is to preserve principal while at the same time
maintaining liquidity and maximizing yields without significantly increasing risk. To achieve this
objective, our cash equivalents are investment grade, liquid, money market instruments. If the
carrying value of our investments exceeds the fair value, and the decline in fair value is deemed
to be other-than-temporary, we will be required to write down the value of our investments, which
could materially harm our results of operations and financial condition. Moreover, the performance
of certain securities in our investment portfolio correlates with the credit condition of
government agencies and corporate issuers. With the current unstable credit environment, we might
incur significant realized, unrealized or impairment losses associated with these investments.
In the year ended December 31, 2009, the Canadian dollar was QLT Inc.s functional currency, while
the U.S. dollar was our reporting currency. As a result, U.S. dollar-denominated monetary assets
and liabilities held by us were revalued and gave rise to foreign currency gains (or losses).
During the first quarter of 2010, the functional currency of QLT Inc. was changed to the U.S.
dollar as a result of the change in our business related to the receipt of exclusive U.S. rights to
the Visudyne patents from Novartis. Beginning in 2010, to the extent that foreign currency
denominated (i.e., non-USD) monetary assets do not equal the amount of our foreign
currency-denominated monetary liabilities, foreign currency gains or losses could arise and
materially impact our financial statements.
36
The continued uncertainty in global economic conditions could negatively affect our business,
results of operations and financial condition.
There is continued concern over the instability of the financial markets and their influence on the
global economy. The continued uncertainty in global economic conditions could result in a number
of follow-on effects on our business, including insolvency of our key manufacturing and sales
partners resulting in product delays or a decrease in orders for Visudyne or any of our future
products. As such, the uncertainty in global economic conditions could negatively affect our
business, results of operations and financial condition.
Any of these events could have a significant negative impact on our business and financial results,
including reductions in our market share and gross margins.
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Item 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
In conjunction with the sale of our land and building, on August 29, 2008, we entered into a
five-year lease with Discovery Parks, an affiliate of Discovery Parks Trust, a private Canadian
trust that designs and builds research facilities for the benefit of the people of British
Columbia, Canada, for approximately 50,000 square feet of office space in Vancouver, British
Columbia, where our head office, certain research facilities and pilot manufacturing facility are
located.
In connection with our U.S. operations, we lease approximately 10,800 square feet of space at a
facility in Menlo Park, California for a term expiring in 2013, to support certain of our
commercial and development operations.
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Item 3. |
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LEGAL PROCEEDINGS |
From time to time we are involved in legal proceedings arising in the ordinary course of business.
There is no litigation currently pending that could have, individually or in the aggregate, a
material adverse effect on our financial position and results of operations or cash flows.
The following is a description of a legal action against us that was settled by the parties and
dismissed in the last fiscal quarter of 2009.
37
Settlement of Litigation with Massachusetts General Hospital
In April 2000, MEEI filed a civil suit against us in the United States District Court for the
District of Massachusetts, or the District Court, seeking, among other things, to establish that
MEEI was entitled to compensation for certain inventions relating to the use of Visudyne in the
treatment of certain eye diseases including AMD, and asserting a number of claims against us,
including claims for breach of contract, unjust enrichment, and violation of Massachusetts General
Law Chapter 93A, or c. 93A, a consumer protection law which makes unfair or deceptive acts or
practices in the conduct of any trade or commerce unlawful. In November 2006, a jury returned a
verdict in
favour of MEEI on its unjust enrichment and c. 93A claims, and on July 18, 2007, the District Court
entered a judgment on the c. 93A claim, and ordered us to pay MEEI 3.01% of all past, present and
future worldwide Visudyne net sales. The District Court also awarded pre-judgment interest at the
Massachusetts statutory rate of 12% on the amounts as they would have become payable from April 24,
2000 and legal fees in an amount of $14.1 million, to which a reduction of $3.0 million previously
agreed to by MEEI was applied. We appealed the judgment, but on January 12, 2009 the judgment was
affirmed, and on April 23, 2009 an aggregate $127.1 million was paid to MEEI to satisfy the
judgment up to that date.
On February 11, 2009, MGH filed a complaint in the Superior Court of the Commonwealth of
Massachusetts (Superior Court) against QLT Phototherapeutics (Canada), Inc., a prior registered
name for QLT. In its complaint, MGH alleged that it entered into a written agreement with us that
requires us to pay MGH the same amount that we pay MEEI on sales of Visudyne. MGH asserted claims
for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust
enrichment, violation of c. 93A, and sought a declaratory judgment, and MGH sought past, present,
and future royalties and other compensation based on the same 3.01% of worldwide Visudyne net sales
awarded to MEEI, money damages and multiple damages in an amount to be proved at trial,
pre-judgment interest, costs and attorneys fees, as well as any other and further relief that the
court deemed just and proper. The MGH License Agreement provided for a 0.5% royalty payable to MGH
based on Visudyne sales in the U.S. and Canada, and was subject to a most-favored-nations provision
which would have required us to adjust the royalty rate upward had we entered into a license
agreement with MEEI for the same rights at a higher rate.
We removed the case from the Superior Court to the District Court on March 11, 2009 and filed a
Motion to Dismiss the case on March 17, 2009. MGH filed a Motion to Remand the case back to state
court, and filed an opposition to our Motion to Dismiss. The District Court held a hearing on both
of these issues on May 21, 2009, denied MGHs motion to remand, and granted our motion to dismiss
all of the claims filed by MGH except the claim made under c. 93A.
On November 24, 2009, the action was settled by the parties pursuant to a settlement agreement and
amendment to license agreement, under which we paid MGH an aggregate $20.0 million, constituting
payment in full for all past and future royalty obligations under the MGH License Agreement and the
license is now fully paid up. The payment was also in satisfaction and settlement of any
obligations we had, may have, or may have had in connection with the subject matter of the lawsuit,
the License Agreement (other than terms of the License Agreement not affected by the settlement),
certain related patent rights and sales of Visudyne anywhere in the world. Pursuant to the
settlement, the action was dismissed with prejudice on December 1, 2009.
38
PART II
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Item 5. |
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES |
Common Share Information
Our common stock is traded in Canada on the Toronto Stock Exchange (the TSX) under the symbol
QLT and in the U.S. on The NASDAQ Stock Market (NASDAQ) under the symbol QLTI. The following
table sets out, for the periods indicated, the high and low closing sales prices of the common
shares, as reported by the TSX and NASDAQ.
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The Toronto Stock Exchange |
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The NASDAQ Stock Market |
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High |
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Low |
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High |
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Low |
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(CAD$) |
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(CAD$) |
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(U.S.$) |
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2009 |
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Fourth Quarter |
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5.34 |
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3.53 |
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$ |
5.10 |
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$ |
3.36 |
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Third Quarter |
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4.76 |
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2.38 |
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4.42 |
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2.05 |
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Second Quarter |
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2.84 |
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2.23 |
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2.49 |
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1.77 |
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First Quarter |
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3.12 |
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1.82 |
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2.65 |
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1.41 |
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2008 |
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|
|
|
Fourth Quarter |
|
$ |
3.54 |
|
|
$ |
2.20 |
|
|
$ |
3.30 |
|
|
$ |
1.80 |
|
Third Quarter |
|
|
4.39 |
|
|
|
3.30 |
|
|
|
4.08 |
|
|
|
3.25 |
|
Second Quarter |
|
|
4.03 |
|
|
|
3.44 |
|
|
|
3.95 |
|
|
|
3.43 |
|
First Quarter |
|
|
4.85 |
|
|
|
2.32 |
|
|
|
4.59 |
|
|
|
2.45 |
|
The last reported sale price of the common shares on the TSX and on the NASDAQ on February 26, 2010
was CAD $4.94 and U.S. $4.70, respectively.
As of February 26, 2010, there were 1,561 registered holders of our common shares, 1,412 of whom
were residents of the U.S. Of the total 53,789,289 common shares outstanding, the portion held by
registered holders resident in the U.S. was 41,833,149 or 77.7%.
39
Share Price Performance Graph
The graph below compares cumulative total shareholder return on the common shares of QLT for the
last five fiscal years with the total cumulative return of the S&P/TSX Composite Index and the
NASDAQ Biotechnology Index over the same period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
Dec. 30, |
|
|
Dec. 29, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
QLT Total Return |
|
|
100.00 |
|
|
|
39.55 |
|
|
|
52.61 |
|
|
|
27.49 |
|
|
|
14.99 |
|
|
|
30.85 |
|
S&P/TSX Composite Index |
|
|
100.00 |
|
|
|
125.99 |
|
|
|
143.98 |
|
|
|
181.40 |
|
|
|
95.92 |
|
|
|
145.28 |
|
NASDAQ Biotechnology Index |
|
|
100.00 |
|
|
|
102.84 |
|
|
|
103.89 |
|
|
|
108.65 |
|
|
|
94.93 |
|
|
|
109.77 |
|
The graph above assumes $100 invested on December 31, 2004 in common shares of QLT and in each
index converted, where applicable, to U.S. dollars at the Bank of Canada close rate in effect on
each date. The share price shown above for the common shares is historical and not indicative of
future price performance.
The foregoing graph and chart shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this Report into any filing under the Securities Act of 1933
as amended, or under the Exchange Act, except to the extent we specifically incorporate this
information by reference, and shall not otherwise be deemed filed under those Acts.
Dividend Policy
The Company has not declared or paid any dividends on its common shares since inception. The
declaration of dividend payments is at the sole discretion of our Board of Directors. The Board of
Directors may declare dividends in the future depending upon numerous factors that ordinarily
affect dividend policy, including the results of our operations, our financial position and general
business conditions.
40
Equity Plans
We incorporate information regarding the securities authorized for issuance under our equity
compensation plans into this section by reference to the section entitled Securities Authorized
for Issuance Under Equity Compensation Plans in the proxy statement for our 2010 Annual Meeting of
Shareholders.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On October 27, 2009, we announced that our board of directors authorized the repurchase of up to
2.7 million of our common shares, being 5% of our issued and outstanding common shares, over a
12-month period commencing November 3, 2009 under a normal course issuer bid. All purchases are to
be effected in the open market through the facilities of the TSX or NASDAQ, and in accordance with
regulatory requirements. The actual number of common shares which are purchased and the timing of
such purchases are determined by management, subject to compliance with applicable law. All common
shares repurchased will be cancelled. Cumulative purchases under this program during 2009 were
866,790 shares at an average price of $4.59, for a total cost of $4.0 million.
The following table sets forth information regarding our purchases of common shares on a
monthly basis during the three months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISSUER PURCHASES OF EQUITY SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
of Shares that May |
|
|
|
Number of |
|
|
Average |
|
|
Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
Shares |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
Period |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
Programs |
|
October 1, 2009 through October 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,731,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2009 through
November 30, 2009 |
|
|
142,965 |
|
|
$ |
3.56 |
|
|
|
142,965 |
|
|
|
2,588,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2009 through
December 31, 2009 |
|
|
723,825 |
|
|
$ |
4.79 |
|
|
|
723,825 |
|
|
|
1,864,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
866,790 |
|
|
|
|
|
|
|
866,790 |
|
|
|
1,864,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Controls and Other Limitations Affecting Holders of Common Shares
There is no limitation imposed by Canadian law or the Notice of Articles or Articles of the Company on the
right of non-residents to hold or vote common shares in the Company, other than those imposed by
the Investment Canada Act (Canada) (the Investment Act). Generally speaking, the Investment Act
establishes the following two principal procedures for certain investments involving Canadian
businesses, as defined by the Investment Act, by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a Canadian, as defined in the
Investment Act (a non-Canadian): either the filing of an application for review which, except in
certain limited circumstances, must be filed before closing and the non-Canadian cannot complete
its investment until the Minister responsible for the Investment Act has determined that the
investment is likely to be of net benefit to Canada, or the filing of a notice, which must be
filed within 30 days after the completion of the investment. A notice is not subject to
substantive review and is required for investments that involve either the establishment of a new
Canadian business or that involve an acquisition of control of a Canadian business but the
prescribed thresholds for review are not exceeded. Subject to the possible application of the
national security
provisions, the Investment Act does not apply to investments in existing Canadian businesses that
do not result in an acquisition of control, as defined under the Investment Act.
41
A direct investment by a non-Canadian to acquire control of a Canadian business is a reviewable
investment where the value of the assets of the corporation, based on the corporations fiscal year
immediately preceding the investment, is CAD $5 million or more. Higher limits apply for direct
acquisitions by or from World Trade Organization (WTO) member country investors, as described
below.
The acquisition of a majority of the voting interests of an entity or of a majority of the
undivided ownership interests in the voting shares of an entity that is a corporation is deemed to
be acquisition of control of that entity. The acquisition of less than a majority but one-third or
more of the voting shares of a corporation or of an equivalent undivided ownership interest in the
voting shares of the corporation is presumed to be acquisition of control of that corporation
unless it can be established that, on the acquisition, the corporation is not controlled in fact by
the acquirer through the ownership of voting shares. The acquisition of less than one-third of the
voting shares of a corporation or of an equivalent undivided ownership interest in the voting
shares of the corporation is deemed not to be acquisition of control of that corporation. Certain
transactions in relation to common shares in the Company would be exempt from review from the
Investment Act, including:
|
(a) |
|
acquisition of common shares by a person in the ordinary course of that persons
business as a trader or dealer in securities; |
|
(b) |
|
acquisition of control of the Company in connection with the realization of security
granted for a loan or other financial assistance and not for any purpose related to the
provisions of the Investment Act; and |
|
(c) |
|
acquisition of control of the Company by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate direct or indirect
control in fact of the Company, through the ownership of voting interests, remains
unchanged. |
The Investment Act was amended with the Act to Implement the Agreement Establishing the WTO to
provide for special review thresholds for WTO member country investors. Under the Investment Act,
a direct investment in common shares of the Company by a non-Canadian who is a WTO investor (as
defined in the Investment Act) would be reviewable only if it were an investment to acquire control
of the Company and the value of the assets of the Company was equal to or greater than a specified
amount (the Review Threshold). The Review Threshold is CAD $299 million in 2010. This amount is
subject to an annual adjustment on the basis of a prescribed formula in the Investment Act to
reflect inflation and real growth within Canada.
On March 12, 2009, the Government passed the Budget Implementation Act, 2009, (Bill C-10) in
Parliament; Part 13 of Bill C-10 enacted substantial amendments to the Investment Act. Among
the more significant amendments enacted by Bill C-10, the Review Threshold will increase to an
enterprise value of CAD $600 million and eventually will reach an enterprise value of CAD $1
billion (and beyond). However, until such time as regulations prescribing the manner in which
enterprise value will be determined are brought into force, the threshold for evaluating the
reviewability of direct acquisition transactions will continue to be CAD $5 million, or $299
million for WTO Investors, in the aggregate value of the assets being acquired, as described above.
Draft regulations previously issued by Industry Canada indicate that enterprise value will be
determined with reference to the market capitalization of a company plus its total liabilities
minus its cash and cash equivalents.
Separately, pursuant to the Bill C-10, the Minister of Industry can, within a prescribed period,
require the review of an investment by a non-Canadian (even one that does not amount to an
acquisition of control, and/or does not meet the Review Threshold) on grounds of whether it is
likely to be injurious to national security. Ultimately, Cabinet can prohibit the completion of an
investment, or require divestment of control of a completed investment, or impose terms and
conditions on an investment where the investment is injurious to national security.
See also Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations Certain Canadian and U.S. Federal Income Tax Information for U.S. Residents U.S.
Federal Income Tax Information.
42
|
|
|
Item 6. |
|
SELECTED FINANCIAL DATA |
Annual Financial Data
(Recast due to discontinued operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2009(5) |
|
|
2008(4) |
|
|
2007(3) |
|
|
2006(2) |
|
|
2005(1) |
|
(In thousands of U.S. dollars except
per share information) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF OPERATIONS DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
42,106 |
|
|
$ |
48,312 |
|
|
$ |
67,746 |
|
|
$ |
129,370 |
|
|
$ |
190,923 |
|
Research and development expenses |
|
|
28,590 |
|
|
|
29,568 |
|
|
|
37,510 |
|
|
|
39,182 |
|
|
|
44,099 |
|
Income (loss) from continuing operations |
|
|
(36,220 |
) |
|
|
(9,247 |
) |
|
|
(125,537 |
) |
|
|
39,898 |
|
|
|
62,673 |
|
Income (loss) before extraordinary gain |
|
|
99,434 |
|
|
|
134,891 |
|
|
|
(109,997 |
) |
|
|
(101,605 |
) |
|
|
(325,412 |
) |
Net income (loss) |
|
|
99,434 |
|
|
|
134,891 |
|
|
|
(109,997 |
) |
|
|
(101,605 |
) |
|
|
(325,412 |
) |
Basic net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.65 |
) |
|
|
(0.12 |
) |
|
|
(1.68 |
) |
|
|
0.48 |
|
|
|
0.68 |
|
Discontinued operations |
|
|
2.42 |
|
|
|
1.93 |
|
|
|
0.21 |
|
|
|
(1.68 |
) |
|
|
(4.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
1.77 |
|
|
|
1.81 |
|
|
|
(1.47 |
) |
|
|
(1.20 |
) |
|
|
(3.51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.65 |
) |
|
|
(0.12 |
) |
|
|
(1.68 |
) |
|
|
0.48 |
|
|
|
0.68 |
|
Discontinued operations |
|
|
2.42 |
|
|
|
1.93 |
|
|
|
0.21 |
|
|
|
(1.68 |
) |
|
|
(4.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
1.77 |
|
|
|
1.81 |
|
|
|
(1.47 |
) |
|
|
(1.20 |
) |
|
|
(3.51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
31,664 |
|
|
$ |
165,395 |
|
|
$ |
30,564 |
|
|
|
108,843 |
|
|
$ |
103,117 |
|
Short-term investment securities |
|
|
156,450 |
|
|
|
|
|
|
|
96,167 |
|
|
|
265,373 |
|
|
|
362,498 |
|
Working capital |
|
|
257,610 |
|
|
|
281,966 |
|
|
|
49,583 |
|
|
|
323,028 |
|
|
|
514,713 |
|
Total assets |
|
|
419,637 |
|
|
|
491,758 |
|
|
|
548,987 |
|
|
|
639,106 |
|
|
|
776,494 |
|
Convertible debt |
|
|
|
|
|
|
|
|
|
|
172,500 |
|
|
|
172,500 |
|
|
|
172,500 |
|
Total shareholders equity |
|
|
404,454 |
|
|
|
343,230 |
|
|
|
219,823 |
|
|
|
303,214 |
|
|
|
526,111 |
|
For all years presented there were no cash dividends per common share.
43
Quarterly Financial Data (6)
(Recast due to change in discontinued operations)
Set out below is selected consolidated financial information for each of the fiscal quarters of
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
December 31(5) |
|
|
September 30 |
|
|
June 30 |
|
|
March 31 |
|
(In thousands of U.S. dollars except per share information) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
10,810 |
|
|
|
8,785 |
|
|
|
10,728 |
|
|
|
11,783 |
|
Gross profit |
|
|
3,305 |
|
|
|
6,583 |
|
|
|
3,588 |
|
|
|
8,432 |
|
Research and development expenses |
|
|
8,105 |
|
|
|
7,375 |
|
|
|
7,225 |
|
|
|
5,886 |
|
Net (loss) income from continuing operations |
|
|
(36,091 |
) |
|
|
2,236 |
|
|
|
896 |
|
|
|
(3,261 |
) |
Net income (loss) |
|
|
80,582 |
|
|
|
8,921 |
|
|
|
8,629 |
|
|
|
1,301 |
|
Basic net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.67 |
) |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
(0.05 |
) |
Discontinued operations |
|
|
2.15 |
|
|
|
0.12 |
|
|
|
0.14 |
|
|
|
0.07 |
|
Net income (loss) |
|
|
1.49 |
|
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.02 |
|
Diluted net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.67 |
) |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
(0.05 |
) |
Discontinued operations |
|
|
2.15 |
|
|
|
0.12 |
|
|
|
0.14 |
|
|
|
0.07 |
|
Net income (loss) |
|
|
1.49 |
|
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
11,850 |
|
|
|
10,868 |
|
|
|
13,685 |
|
|
|
11,908 |
|
Gross profit |
|
|
8,368 |
|
|
|
7,879 |
|
|
|
9,234 |
|
|
|
8,685 |
|
Research and development expenses |
|
|
6,519 |
|
|
|
6,887 |
|
|
|
8,114 |
|
|
|
8,047 |
|
Net income (loss) from continuing operations |
|
|
(1,962 |
) |
|
|
12,137 |
|
|
|
(6,871 |
) |
|
|
(12,551 |
) |
Net income (loss) |
|
|
5,874 |
|
|
|
146,926 |
|
|
|
(7,438 |
) |
|
|
(10,471 |
) |
Basic net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.03 |
) |
|
|
0.16 |
|
|
|
(00.09 |
) |
|
|
(0.17 |
) |
Discontinued operations |
|
|
0.11 |
|
|
|
1.81 |
|
|
|
(0.01 |
) |
|
|
0.03 |
|
Net income (loss) |
|
|
0.08 |
|
|
|
1.97 |
|
|
|
(0.10 |
) |
|
|
(0.14 |
) |
Diluted net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(0.03 |
) |
|
|
0.16 |
|
|
|
(00.09 |
) |
|
|
(0.17 |
) |
Discontinued operations |
|
|
0.11 |
|
|
|
1.81 |
|
|
|
(0.01 |
) |
|
|
0.03 |
|
Net income (loss) |
|
|
0.08 |
|
|
|
1.97 |
|
|
|
(0.10 |
) |
|
|
(0.14 |
) |
|
|
|
(1) |
|
During the fourth quarter of 2005, events and circumstances indicated impairment of
goodwill and intangible assets acquired in connection with our acquisition of QLT USA in
November 2004. As a result, we recorded a non-cash charge of $410.5 million to reduce the
carrying value of our goodwill to $104.0 million and our intangible assets to $6.9 million. |
|
(2) |
|
On February 9, 2007, QLT USA and Sanofi-aventis entered into a Settlement, Release and
Patent License to settle the TAP Pharmaceutical Products Inc. litigation, and without
admitting liability, QLT USA paid $112.5 million and Sanofi-aventis paid $45.0 million, for an
aggregate settlement amount of $157.5 million. As a result of this settlement, we recorded a
charge of $112.5 million in our results for 2006. |
|
(3) |
|
In July 2007, the District Court entered judgment in the lawsuit brought against us by MEEI
in connection with U.S. patent no. 5,789,349. The District Court found that we were liable
under Massachusetts state law for unfair trade practices, but that such violation was not
knowing or willful, and determined that we should pay MEEI 3.01% of past, present and future
worldwide Visudyne net sales, plus interest and legal fees. As a result, we recorded a charge
of $110.2 million in our results for 2007. |
|
|
|
On October 18, 2007, we completed the acquisition of ForSight Newco II, Inc. (now QPD) for
aggregate consideration of $42.3 million. The acquired in-process R&D charge of $42.9 million
related to the proprietary ocular punctal plug drug delivery system in development. |
44
|
|
|
(4) |
|
Assets related to Aczone were sold by QLT USA to Allergan in July 2008 for cash
consideration of $150.0 million, pursuant to the terms of a purchase agreement executed on
June 6, 2008. We recognized a pre-tax gain of $118.2 million related to this transaction
within discontinued operations for 2008. |
|
|
|
On August 25, 2008 QLT USA entered into an exclusive license agreement with Reckitt for QLT
USAs Atrigel sustained-release drug delivery technology, except for certain rights being
retained by us and our prior licensees, including rights retained for use with the Eligard
products. We recognized a pre-tax gain of $16.7 million related to this transaction within
discontinued operations for 2008. |
|
|
|
On August 29, 2008, we completed the sale of our land and building comprising our corporate
headquarters and the adjacent undeveloped parcel of land in Vancouver to Discovery Parks for
CAD$65.5 million. We recognized a pre-tax gain of $21.7 million related to this transaction in
our results for 2008. |
|
|
|
As a result of an evaluation of QLT USAs prior earnings history, expected future earnings, and
gains recorded on the divestiture of Aczone and out-licensing of Atrigel, we concluded that a
valuation allowance was no longer required on substantially all of QLT USAs tax assets. We
recognized a reduction of our valuation allowance of $54.7 million within discontinued
operations and $4.8 million within continuing operations in the third quarter of 2008. |
|
(5) |
|
On October, 1, 2009, the Eligard product line was divested as part of the sale of all of
the shares of QLT USA to Tolmar for up to an aggregate $230.0 million. Pursuant to the stock
purchase agreement, we received $20.0 million on closing and will receive $10.0 million on or
before October 1, 2010 and up to an additional $200.0 million payable on a quarterly basis in
amounts equal to 80% of the royalties paid under the license agreements with each of Sanofi
and MediGene for the commercial marketing of Eligard in Canada, the U.S. and Europe (beginning
with the royalties payable for Eligard sales that occurred in the quarter ended September 30,
2009) until the earlier of QLT receiving the additional $200.0 million or October 1, 2024. In
addition, under the terms of the stock purchase agreement, Tolmar paid QLT an amount equal to
the cash that QLT USA had on-hand at closing. We recognized a pre-tax gain of $107.4 million
related to this transaction within discontinued operations for 2009. |
|
(6) |
|
The basic and diluted income (loss) per share are determined separately for each quarter.
Consequently, the sum of the quarterly amounts may differ from the annual amounts disclosed in
the consolidated financial statements as a result of using different weighted average numbers
of shares outstanding. |
45
|
|
|
Item 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following information should be read in conjunction with the accompanying 2009 consolidated
financial statements and notes thereto, which are prepared in accordance with U.S. generally
accepted accounting principles (U.S. GAAP). All of the following amounts are expressed in U.S.
dollars unless otherwise indicated.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and forward looking information within the meaning of
the Canadian securities legislation which are based on our current expectations and projections.
Words such as anticipate, project, believe, expect, forecast, outlook, plan,
intend, estimate, should, may, assume, continue, and variations of such words or
similar expressions are intended to identify our forward-looking statements and forward-looking
information. Such statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of QLT to be materially different
from the results of operations or plans expressed or implied by such forward-looking statements and
forward-looking information. Many such risks, uncertainties and other factors are taken into
account as part of our assumptions underlying the forward-looking statements and forward-looking
information.
The following factors, among others, including those described under Item 1A. Risk Factors, could
cause our future results to differ materially from those expressed in the forward-looking
statements and forward-looking information:
|
|
|
levels of future sales of Visudyne®, including the impact of competition; |
|
|
|
our ability to effectively market and sell Visudyne in the U.S.; |
|
|
|
the ability of Novartis Pharma AG (Novartis) to effectively market and sell Visudyne
in countries outside the U.S.; |
|
|
|
our continued ability to supply Visudyne to our customers; |
|
|
|
our expectations regarding Visudyne label changes, reimbursement and sales; |
|
|
|
receipt of all or part of the contingent consideration pursuant to the stock purchase
agreement entered into with TOLMAR Holding, Inc. (Tolmar), which is based on anticipated
levels of future sales of Eligard®; |
|
|
|
unanticipated future operating results; |
|
|
|
our reliance on contract manufacturers and suppliers to manufacture Visudyne at
competitive prices and in accordance with FDA and other local and foreign regulatory
requirements as well as our product specifications; |
|
|
|
our reliance on our specialty wholesale distributors to distribute Visudyne in
accordance with regulatory requirements and the terms of our agreements; |
|
|
|
our expectations regarding future tax liabilities as a result of our recent
restructuring transactions, changes in estimates of prior years tax items and results of
tax audits by tax authorities; |
|
|
|
the scope, validity and enforceability of our and third party intellectual property
rights; |
|
|
|
our ability to successfully develop our punctal plug drug delivery system; |
|
|
|
the anticipated timing, cost and progress of the development of our technology and
clinical trials; |
|
|
|
the anticipated timing of regulatory submissions for products and product candidates; |
|
|
|
the anticipated timing for receipt of, and our ability to maintain, regulatory approvals
for products and product candidates; |
|
|
|
the anticipated timing for receipt of, and our ability to maintain, reimbursement
approvals for our products and product candidates, including reimbursement under U.S.
governmental and private insurance programs; and |
|
|
|
existing governmental laws and regulations and changes in, or the failure to comply
with, governmental laws and regulations. |
Although we believe that the assumptions underlying the forward-looking statements and
forward-looking information contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore such statements and information included in this Report may not prove to
be accurate. In light of the significant uncertainties inherent in the forward-looking statements
and forward-looking information included herein, the inclusion of such statements and information
should not be regarded as a representation by us or any other person that the results or conditions
described in such statements and information or our objectives and plans will be achieved. Any
forward-looking statement and forward-looking information speaks only as of the date on which it is
made. Except to fulfill our obligations under the applicable securities laws, we undertake no
obligation to update any such statement or information to reflect events or circumstances occurring
after the date on which it is made.
46
Financial guidance is contained in our earnings press release issued on March 10, 2010 which can be
found on SEDAR at www.sedar.com and EDGAR at www.sec.gov. Information contained in the earnings
press release and related Material Change Report and Current Report on Form 8-K filed therewith
shall not be deemed filed for purposes of Section 18 of the Exchange Act, and is not incorporated
by reference herein.
Overview
QLT was formed in 1981 under the laws of the Province of British Columbia and is a biotechnology
company dedicated to the development and commercialization of innovative therapies for the eye. We
are currently focused on our commercial product, Visudyne®, for the treatment of wet
AMD, and developing our ophthalmic product candidates.
Over the last two years we have narrowed our focus to development and commercial efforts in the
field of ophthalmology. In 2008, we initiated a strategic corporate restructuring designed to
enhance shareholder value and focus our business on our ophthalmic assets. Under the strategic
corporate restructuring we disposed of all of our non-core assets, including Aczone®,
approved for the treatment of acne vulgaris, the Atrigel® sustained-release drug
delivery technology (except for certain rights retained by us), the Eligard® line of
products, approved for the treatment of prostate cancer (through the sale of all of the shares of
our U.S. subsidiary, QLT USA), and our land and building comprising our corporate headquarters in
Vancouver, B.C. We are now a biotechnology company focused on developing and commercializing
products for use in the field of ophthalmology.
Products, Revenues and Other Sources of Funds
Our revenue is derived from sales of our Visudyne product and, prior to the sale of QLT USA on
October 1, 2009, revenue was also derived from the Eligard line of products, which were marketed
through commercial licensees. Net product revenues from sales of Eligard have been reported as
discontinued operations for the current and prior periods. Visudyne utilizes PDT to treat the eye
disease known as wet AMD, the leading cause of blindness in people over the age of 55 in North
America and Europe. Visudyne is also used for the treatment of CNV due to pathologic myopia, or
severe near-sightedness, and presumed ocular histoplasmosis. Visudyne was co-developed by QLT and
Novartis, and is marketed and sold in over 80 countries worldwide.
Under the stock purchase agreement with Tolmar, pursuant to which we sold all of the shares of our
U.S. subsidiary, QLT USA, and its principal asset, Eligard, we are entitled to future payments
comprising $10.0 million payable on or before October 1, 2010 and up to an additional $200.0
million, payable on a quarterly basis in amounts equal to 80% of the royalties paid under the
license agreements with each of Sanofi and MediGene for the commercial marketing of Eligard in the
U.S., Canada and Europe. We are entitled to these payments until the earlier of our receipt of the
additional $200.0 million or October 1, 2024. As of March 10, 2010, we have received $18.7 million
of the up to $200.0 million payable to us under the stock purchase agreement.
Research and Development
We devote significant resources to research and development programs in various stages of
development. See Item 1. Business, Overview Research and Development.
47
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting periods
presented. Significant estimates are used for, but not limited to, provisions for non-completion
of inventory, provision for obsolete inventory, assessment of the recoverability of long-lived
assets, allocation of goodwill to divested businesses, the fair value of the mortgage and note
receivable, the fair value of contingent consideration, allocation of costs to manufacturing under
a standard costing system, allocation of overhead expenses to research and development,
determination of fair value of assets and liabilities acquired in net asset acquisitions or
purchase business combinations, stock-based compensation, provisions for
taxes, tax assets and tax liabilities. Actual results may differ from estimates made by
management. The significant accounting policies which we believe are the most critical to aid in
fully understanding and evaluating our reported financial results include those which follow:
Revenue Recognition
Net Product Revenue
Our net product revenues have been derived from sales of Visudyne. Following the divestment of the
Eligard product line as part of our sale of QLT USA, net product revenues from sales of Eligard
have been reported as discontinued operations for the current and prior periods.
With respect to Visudyne, under the terms of the PDT Product Development, Manufacturing and
Distribution Agreement with Novartis (the PDT Agreement), which was amended and restated on
October 16, 2009, we are responsible for Visudyne manufacturing and product supply, and through
December 31, 2009, Novartis was responsible for marketing and distribution of Visudyne. We utilize
contract manufacturers for Visudyne production. Through December 31, 2009, the PDT Agreement
provided that the calculation of total revenue for the sale of Visudyne be composed of three
components: (1) an advance on the cost of inventory sold to Novartis, (2) an amount equal to 50%
of Novartis net proceeds from Visudyne sales to end-customers (determined according to a
contractually agreed definition), and (3) the reimbursement of other specified costs incurred and
paid for by us. We recognize revenue from the sale of Visudyne when persuasive evidence of an
arrangement exists, delivery has occurred, the end selling price of Visudyne is fixed or
determinable, and collectibility is reasonably assured. Under the calculation of revenue noted
above, this occurred when Novartis sold Visudyne to its end customers. On January 1, 2010, we
received from Novartis the exclusive U.S. rights to the Visudyne patents to sell and market
Visudyne in the U.S. As a result, we have established a commercial presence in the U.S., operating
a direct marketing and sales force through our U.S. subsidiary, QLT Ophthalmics, Inc., and have
rights to all end-user revenue derived from Visudyne sales in the U.S. Novartis continues to
market and sell Visudyne outside the U.S. and will pay us a royalty on net sales of the product.
Commencing January 1, 2010, we will be recording net product revenue on sales in the U.S., and
royalties from Novartis on sales outside the U.S. Our revenue from Visudyne will fluctuate
depending on our and Novartis ability to market and distribute Visudyne.
Through December 31, 2009, we did not offer rebates or discounts in the normal course of business
and did not experience any material product returns; accordingly, we did not provide an allowance
for rebates, discounts and returns.
Discontinued Operations
On October, 1, 2009, the Eligard product line was divested as part of the sale of all of the shares
of our wholly- owned U.S. subsidiary, QLT USA. Previously, under the terms of the license
agreements with QLT USAs commercial licensees, we were responsible for Eligard manufacturing and
supply and received from our commercial licensees an agreed upon sales price upon shipment to them.
We also earned royalties from certain commercial licensees based upon their sales of Eligard
products to end customers, which were included in royalty revenue. We recognized net product
revenue from Eligard product sales upon the existence of persuasive evidence of an arrangement,
upon product shipment and title transfer to our commercial licensees, upon reasonable assurance of
collectibility, and upon the price being fixed or determinable. Under this calculation of revenue,
we recognized net product revenue from Eligard at the time of shipment to our commercial licensees.
Royalties from Eligard have been reported as discontinued operations for the current and prior
periods. Previously, we recognized royalties from Eligard when product was shipped by certain of
our commercial licensees to end customers based on royalty rates specified in our agreements with
them. Generally, royalties were based on net product sales (gross sales less discounts, allowances
and other items) and calculated based on information supplied to us by our commercial licensees.
48
Inventory and Cost of Sales
Following the divestment of the Eligard product line as part of our sale of QLT USA, cost of sales
related to Eligard have been reported as discontinued operations for the current and prior periods.
Visudyne cost of sales, consisting of expenses related to the production of bulk Visudyne, royalty
expense on Visudyne sales and ongoing damages related to the Massachusetts Eye and Ear Infirmary
(MEEI) judgment, are charged against earnings in the period that Novartis sells to end customers.
Losses on manufacturing purchase commitments are immediately charged to cost of sales. We
utilize a standard costing system, which includes a reasonable allocation of overhead expenses, to
account for inventory and cost of sales, with adjustments being made periodically to reflect
current conditions. Our standard costs are estimated based on managements best estimate of annual
production volumes and material costs. Overhead expenses comprise direct and indirect support
activities related to manufacturing and involve costs associated with activities, such as quality
inspection, quality assurance, supply chain management, safety and regulatory. Overhead expenses
are allocated to inventory at various stages of the manufacturing process under a standard costing
system, and eventually to cost of sales as the related products were sold to our commercial
licensees, or in the case of Visudyne, through December 31, 2009, by Novartis to third parties. We
record a provision for the non-completion of product inventory based on our history of batch
completion. The provision is calculated at each stage of the manufacturing process. Inventory
that is obsolete or expired is written down to its market value if lower than cost. Inventory
quantities are regularly reviewed and provisions for excess or obsolete inventory are recorded
based on forecasted future demand and market conditions. There are three areas within our inventory
costing system that require significant management judgment and estimates: (i) annual production
volume, (ii) overhead allocation, and (iii) provision for non-completion of product inventory.
These three areas are described below:
(i) Annual Production Volume. We estimate our production volume at the beginning of the year in
order to arrive at a per unit allocation of fixed costs. Our estimate of production volume is based
on our forecast of product sales and is updated periodically.
(ii) Overhead Allocation. We estimate our overhead expenses in the beginning of the year in order
to arrive at a per unit allocation of overhead. Our estimate of overhead expenses is based on
historical experience and the projected production volume. We update our estimate on a periodic
basis based on the latest information. Overhead expenses are allocated to inventory at various
stages of the manufacturing process under a standard costing system, and eventually to cost of
sales as the related products are sold to our commercial licensees, or in the case of Visudyne,
through December 31, 2009, by Novartis to third parties.
(iii) Provisions for Noncompletion of Inventory and Obsolete Inventory. We record a provision for
the non-completion of product inventory based on our history of batch completion to provide for the
potential failure of inventory batches to pass quality inspection. The provision is calculated at
each stage of the manufacturing process. We estimate our non-completion rate based on past
production and adjust our provision based on actual production volume. A batch failure may utilize
a significant portion of the provision as a single completed batch currently costs up to $2.0
million, depending on the product and the stage of production.
While we believe our standard costs are reliable, actual production costs and volume changes may
impact inventory, cost of sales, and the absorption of production overheads.
Inventory that is obsolete or expired is written down to its market value if lower than cost.
Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory are
recorded primarily based on our forecast of future demand and market conditions. If actual market
conditions differ from those we have assumed, if there is a sudden and significant decrease in
demand for our products, if there is a decrease in our long-term sales forecast, or if there is a
higher incidence of inventory obsolescence due to a rapid change in technology, we may be required
to take additional provision for excess or obsolete inventory. During the year ended December 31,
2009, we concluded that based on our forecast of future Visudyne demand, certain early stage
materials used in the manufacture of Visudyne were potential excess inventory. As a result, we
provided a reserve against the excess inventory and recorded a charge of $8.1 million in cost of
sales. If our future Visudyne demand were to drop by 10%, we would record an additional charge of
$1.9 million.
Discontinued Operations
Cost of sales related to the production of various Eligard products were charged against earnings
in the period of the related product sale to our commercial licensees.
49
Stock-Based Compensation
On January 1, 2006, we adopted SFAS 123 Revised, Share-Based Payment, which was later superceded by
the FASB codification and included in ASC topic 718, using the modified prospective method. ASC
topic 718 requires stock-based compensation to be recognized as compensation expense in the
statement of earnings based on their fair values on the date of the grant, with the compensation
expense recognized over the period in which a grantee is required to provide service in exchange
for the stock award. Compensation expense recognition provisions are applicable to new awards and
to any awards modified, repurchased or cancelled after the adoption date.
We use the Black-Scholes option pricing model to estimate the value of our stock option awards at
each grant date. The Black-Scholes option pricing model was developed for use in estimating the
value of traded options that have no vesting restrictions and are fully transferable. In addition,
option pricing models require the input of highly subjective assumptions including the expected
stock price volatility. We project expected volatility and expected life of our stock options based
upon historical and other economic data trended into future years. The risk-free interest rate
assumption is based upon observed interest rates appropriate for the terms of our stock options.
For the year ended December 31, 2009, stock based compensation of $2.2 million was expensed as
follows: $0.9 million to research and development costs, $1.2 million to selling, general and
administrative costs, and a negligible amount to cost of sales and discontinued operations. The
weighted average assumptions used for options granted during 2009 included a volatility factor of
53.8%, a 3.6 year term until exercise, and a 1.8% risk free interest rate.
For the year ended December 31, 2008, stock based compensation of $3.4 million was expensed as
follows: $1.0 million to research and development costs, $1.6 million to selling, general and
administrative costs, $0.5 million to restructuring, $0.3 million to discontinued operations and a
negligible amount to cost of sales. The assumptions used for options granted during 2008 included a
volatility factor of 42.1%, a 3.9 year term until exercise, and a 2.9% risk free interest rate.
Research and Development
Research and development (R&D) costs are expensed as incurred and consist of direct and indirect
expenditures, including a reasonable allocation of overhead expenses, associated with our various
R&D programs. Overhead expenses comprise general and administrative support provided to the R&D
programs and involve costs associated with support activities such as rent, facility maintenance,
utilities, office services, information technology, legal, accounting and human resources.
Significant management judgment is required in the selection of an appropriate methodology for the
allocation of overhead expenses. Our methodology for the allocation of overhead expenses utilizes
the composition of our workforce as the basis for our allocation. Specifically, we determine the
proportion of our workforce that is dedicated to R&D activities and allocate to R&D expense the
equivalent proportion of overhead expenses. We consider this method the most reasonable method of
allocation based on the nature of our business and workforce. Changes in the composition of our
workforce and the types of support activities are factors that can influence our allocation of
overhead expenses. Costs related to the acquisition of development rights for which no alternative
use exists are classified as research and development and expensed as incurred. Patent application,
filing and defense costs are also expensed as incurred. R&D costs also include funding provided
under contractual collaborative arrangements for joint R&D programs.
Income Taxes
Income taxes are reported using the asset and liability method, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable to: (i) differences between
the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases, and (ii) operating loss and tax credit carry forwards using applicable enacted tax
rates. An increase or decrease in these tax rates will increase or decrease the carrying value of
future net tax assets resulting in an increase or decrease to net income. Income tax credits, such
as investment tax credits, are included as part of the provision for income taxes. Significant
estimates are required in determining our provision for income taxes. Some of these estimates are
based on interpretations of existing tax laws or regulations. Various internal and external
factors may have favorable or unfavorable effects on our future effective tax rate. These factors
include, but are not limited to, changes in tax laws, regulations and/or rates, changing
interpretations of existing tax laws or regulations, changes in estimates of prior years items,
results of tax audits by tax authorities, future levels of research and development spending,
changes in estimates related to repatriation of undistributed earnings of foreign subsidiaries,
changes in financial statement presentation related to discontinued operations, and
50
changes in
overall levels of pre-tax earnings. The realization of our deferred tax assets is primarily dependent on generating sufficient taxable income prior to expiration of any loss
carry forward balance. A valuation allowance is provided when it is more likely than not that a
deferred tax asset will not be realized. The assessment of whether or not a valuation allowance is
required often requires significant judgment including the long-range forecast of future taxable
income and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation
allowances are made to earnings in the period when such assessments are made.
Our income tax positions are assessed in accordance with the provisions of FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, which was later superceded by the FASB codification
and included in ASC topic 740. We record tax benefits for all years subject to examination based
upon managements evaluation of the facts, circumstances and information available at the reporting
date. There is inherent uncertainty in quantifying income tax positions. For those tax positions
where it is more likely than not that a tax benefit will be sustained, we have recorded the largest
amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement
with a taxing authority that has full knowledge of all relevant information. For those income tax
positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit
has been recognized in the financial statements. See Note 16 Income Taxes in Notes to the
Consolidated Financial Statements.
Discontinued Operations and Assets Held for Sale
We consider assets to be held for sale when management approves and commits to a formal plan to
actively market the assets for sale. Upon designation as held for sale, the carrying value of the
assets is recorded at the lower of their carrying value or their estimated fair value. We cease to
record depreciation or amortization expense at that time.
The results of operations, including the gain on disposal for businesses classified as held for
sale are excluded from continuing operations and reported as discontinued operations for the
current and prior periods. We do not expect any continuing involvement with these businesses
following their sales. Additionally, segment information does not include the results of businesses
classified as discontinued operations.
Contingent Consideration
Contingent consideration arising from the sale of QLT USA is measured at fair value. The contingent
consideration is revalued at each reporting period and changes are included in continuing
operations.
To estimate the fair value of contingent consideration at December 31, 2009, we used a discounted
cash flow model based on estimated timing and amount of future cash flows, discounted using an
industry average cost of capital of 9.5%. Future cash flows were estimated by utilizing external
market research to estimate market size, to which we applied market share and pricing assumptions
based on historical sales data and expected future competition. If the discount rate were to
increase by 1%, the contingent consideration would decrease by $3.4 million, from $151.1 million to
$147.7 million. If estimated future revenues were to decrease by 10%, the contingent consideration
would decrease by $3.9 million, from $151.1 million to $147.2 million.
Long-Lived and Intangible Assets
We depreciate plant and equipment using the straight-line method over their estimated economic
lives, which range from three to five years. Determining the economic lives of plant and equipment
requires us to make significant judgments that can materially impact our operating results.
We periodically evaluate our long-lived assets for potential impairment. We perform these
evaluations whenever events or changes in circumstances suggest that the carrying amount of an
asset or group of assets is not recoverable. If impairment recognition criteria are met, we charge
impairments of the long-lived assets to operations.
In accounting for acquisitions, we allocate the purchase price to the fair value of the acquired
tangible and intangible assets, including in-process research and development (IPR&D). We
generally determine the value of acquired intangible assets and IPR&D using a discounted cash flow
model, which requires us to make assumptions and estimates about, among other things: the time and
investment that is required to develop products and technologies; our ability to develop and
commercialize products before our competitors develop and commercialize products for the same
indications; the amount of revenue to be derived from the products; and appropriate discount rates
to use in the analysis. Use of different estimates and judgments could yield materially different
results in our analysis, and could result in materially different asset values. At December 31,
2009, we had no intangible assets recorded on our balance sheet.
51
Recently Issued and Recently Adopted Accounting Standards
See Note 3 Significant Accounting Policies in Notes to the Consolidated Financial Statements
for a discussion of new accounting standards.
COMPARISON OF YEARS ENDED DECEMBER 31, 2009 AND 2008
For the year ended December 31, 2009, we recorded net income of $99.4 million, or $1.77 per common
share. These results compare to net income of $134.9 million, or $1.81 per common share, for the
year ended December 31, 2008. The following is a discussion and analysis of our results of
operations:
Revenues
Net Product Revenue
Net product revenue was determined as follows:
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, |
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
Visudyne sales by Novartis |
|
$ |
105,657 |
|
|
$ |
141,865 |
|
Less: Marketing and distribution costs(1) |
|
|
(34,346 |
) |
|
|
(62,213 |
) |
Less: Inventory costs(2) |
|
|
(6,031 |
) |
|
|
(11,153 |
) |
Less: Royalties to third parties(3) |
|
|
(2,276 |
) |
|
|
(3,040 |
) |
|
|
|
|
|
|
|
|
|
$ |
63,004 |
|
|
$ |
65,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QLTs 50% share of Novartis net proceeds from Visudyne sales |
|
$ |
31,502 |
|
|
$ |
32,730 |
|
Add: Advance on inventory costs from Novartis(4) |
|
|
5,608 |
|
|
|
7,142 |
|
Add: Royalties reimbursed to QLT(5) |
|
|
2,272 |
|
|
|
3,090 |
|
Add: Other costs reimbursed to QLT(6) |
|
|
2,724 |
|
|
|
5,350 |
|
|
|
|
|
|
|
|
Revenue from Visudyne sales |
|
$ |
42,106 |
|
|
$ |
48,312 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Less: Marketing and distribution costs |
|
|
|
This represents Novartis cost of marketing, promoting, and distributing Visudyne, as well as
certain specified costs incurred and paid for by QLT, determined in accordance with the PDT
Agreement between QLT and Novartis. The costs incurred by Novartis are related to its sales
force, advertising expenses, marketing and certain administrative overhead costs. The costs
incurred by us include marketing support, legal and administrative expenses that we incurred
in support of Visudyne sales. |
|
(2) |
|
Less: Inventory costs |
|
|
|
This represents Novartis cost of goods sold related to Visudyne. It includes the cost of
bulk Visudyne we shipped to Novartis and our provisions for certain excess or obsolete
inventory, losses on manufacturing purchase commitments, plus Novartis packaging and
labelling costs, freight and custom duties. |
|
(3) |
|
Less: Royalties to third parties |
|
|
|
This represents the royalty expenses we incurred and charged to Novartis pursuant to the PDT
Agreement between QLT and Novartis. The amounts are calculated by us based on specified
royalty rates from existing license agreements with our licensors of certain Visudyne patent
rights. |
|
(4) |
|
Add: Advance on inventory costs from Novartis |
|
|
|
This represents the amount that Novartis advanced to us for shipments of bulk Visudyne and
reimbursement for inventory obsolescence. The price of the Visudyne shipments is determined
based on the PDT Agreement and represents our actual costs of producing Visudyne. |
|
(5) |
|
Add: Royalties reimbursed to QLT |
|
|
|
This is related to item (3) above and represents the amounts we receive from Novartis in
reimbursement for the actual royalty expenses we owed to third party licensors. |
|
(6) |
|
Add: Other costs reimbursed to QLT |
|
|
|
This represents reimbursement by Novartis to us of our portion of the marketing and
distribution costs described in (1) above. Our marketing and distribution costs include
marketing support, legal and administrative expenses that we incur in support of Visudyne
sales. |
52
For the year ended December 31, 2009, revenue from Visudyne sales declined by $6.2 million, or
12.8%, to $42.1 million compared to $48.3 million for the year ended December 31, 2008. The
decrease was primarily due to a 26% decline in Visudyne sales as a result of decreased end user
demand worldwide due to competing therapies offset by a 44.8% reduction in marketing and
distribution costs. For the year ended December 31, 2009, approximately 29% of total Visudyne
sales were in the U.S., 28% were in Europe and 43% were in other markets worldwide, compared to
approximately 26%, 32% and 42% in the U.S., Europe and other markets worldwide, respectively, for
the year ended December 31, 2008. Overall, the ratio of our 50% share of Novartis net proceeds
from Visudyne sales compared to total worldwide Visudyne sales was 29.8% for the year ended
December 31, 2009, up from 23.1% in the prior year.
Under the Amended PDT Agreement, effective January 1, 2010, we have exclusive U.S. sales and
marketing rights to Visudyne, including rights to all end-user revenue derived from Visudyne sales
in the U.S. Outside the U.S., Novartis has retained marketing and sales rights and will pay us a
royalty of 20% of net sales until December 31, 2014, and thereafter 16% of net sales until the
expiry of the Amended PDT Agreement on December 31, 2019. As a result, we expect an increase in
our revenues from Visudyne.
Costs and Expenses
Cost of Sales
For the year ended December 31, 2009, cost of sales of $20.2 million increased $6.1 million, or
42.8%, compared to $14.1 million for the same period in 2008. The increase was mainly due to an
$8.1 million excess inventory provision related to our Visudyne inventory, offset by lower cost of
sales related to the drop in Visudyne sales. Inventory quantities are regularly reviewed and
provisions for excess or obsolete inventory are recorded primarily based on our forecast of future
demand and market conditions. During the year ended December 31, 2009, we concluded that based on
our forecast of future Visudyne demand, certain early stage materials used in the manufacture of
Visudyne were potential excess inventory. As a result, we provided a reserve against the excess
inventory and recorded a charge of $8.1 million in cost of sales. The prior period cost of sales
related to Visudyne includes a charge of $0.9 million for excess inventory.
Cost of sales related to Visudyne included 3.01% of worldwide Visudyne net sales, pursuant to
damages awarded in the judgment against us in the MEEI litigation. See Note 22 Contingencies in
the Notes to the Consolidated Financial Statements. We are required to continue to pay MEEI 3.01%
of worldwide Visudyne net sales, and this amount is reported in cost of sales. On October 16,
2009, we entered into an Amended and Restated PDT Product Development, Manufacturing and
Distribution Agreement with Novartis. Under the Amended PDT Agreement, QLT and Novartis have
released each other from all open claims the parties may have against each other, including any in
connection with QLTs litigation with MEEI and QLTs litigation with Massachusetts General Hospital
(MGH). No reimbursement has been or will be received for the damages paid to MEEI in the amount
of 3.01% of worldwide Visudyne net sales.
Research and Development
R&D expenditures decreased 3.3% to $28.6 million for the year ended December 31, 2009 compared to
$29.6 million in the same period in 2008. The decrease was a result of a decline in spending on
Visudyne combination studies and savings from our 2008 restructuring, which more than offset higher
spending on the punctal plug program.
53
The magnitude of future R&D expenses is highly variable and depends on many factors over which we
have limited visibility and control. Numerous events can happen to an R&D project prior to it
reaching any particular milestone which can significantly affect future spending and activities
related to the project. These events include:
|
|
|
inability to design devices to function as expected, |
|
|
|
|
delays or inability to formulate an active ingredient in an appropriate concentration to
deliver effective doses of a drug, |
|
|
|
|
changes in the regulatory environment, |
|
|
|
|
introduction of competing technologies and treatments, |
|
|
|
|
unexpected safety issues, |
|
|
|
|
patent application, maintenance and enforcement issues, |
|
|
|
|
inability to operate without infringing the proprietary rights of others, |
|
|
|
|
changes in the commercial marketplace, |
|
|
|
|
difficulty enrolling patients in, or keeping them in, our clinical studies, |
|
|
|
|
delays in study progression, including study site, Institutional Review Board and
regulatory delays, |
|
|
|
|
failure to meet favorable study endpoints, |
|
|
|
|
inability to develop cost effective manufacturing methods that comply with regulatory
standards, |
|
|
|
|
inability to attract personnel or retain personnel with expertise required by our
development program, |
|
|
|
|
inability to manufacture sterile supplies necessary for composition of products, |
|
|
|
|
uncertainties related to collaborative arrangements, |
|
|
|
|
environmental risks, and |
|
|
|
|
other factors referenced under Item 1A, Risk Factors. |
R&D expenditures by therapeutic area were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Ocular |
|
$ |
28,016 |
|
|
$ |
26,423 |
|
|
$ |
27,769 |
|
Dermatology |
|
|
10 |
|
|
|
2,926 |
|
|
|
9,250 |
|
Urology and Oncology |
|
|
|
|
|
|
|
|
|
|
19 |
|
Other |
|
|
564 |
|
|
|
219 |
|
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,590 |
|
|
$ |
29,568 |
|
|
$ |
37,510 |
|
|
|
|
|
|
|
|
|
|
|
Status of significant products in development is as follows:
|
|
|
Product/Indication |
|
Status/Development Stage |
|
|
|
Punctal Plug (latanoprost) |
|
|
|
|
|
Glaucoma and Ocular Hypertension
|
|
Phase II studies ongoing through 2010. |
|
|
|
Punctal Plug (olopatadine) |
|
|
|
|
|
Allergic Conjunctivitis
|
|
Phase II proof of concept study planned to be initiated in
the second half of 2010. |
|
|
|
Visudyne |
|
|
|
|
|
Wet AMD
|
|
Phase II study of Visudyne followed by an anti-VEGF drug
(with or without dexamethasone) either as a bi-therapy or
triple therapy, expected to complete in the first half of
2010. |
|
|
|
QLT091001 |
|
|
|
Leber Congenital Amaurosis
|
|
Completed Phase Ia study in March 2009. Commenced Phase Ib
study in December 2009. |
|
|
|
QLT091568 |
|
|
|
|
|
Glaucoma and Ocular Hypertension
|
|
Phase I/II proof of concept study completed by Othera in
2009. Preclinical, formulation and development work
through 2010. |
54
See Item 1. Business, Research and Development, and Our Products In Development for
descriptions of our significant development programs.
Selling, General and Administrative Expenses
For the year ended December 31, 2009, Selling, General and Administration (SG&A) expenses
remained essentially flat at $18.3 million compared to $18.2 million for the same period in 2008.
The negligible increase was primarily due to higher legal fees and a charge for capital tax
partially offset by cost savings from our restructuring.
Litigation
For the year ended December 31, 2009, litigation expense of $20.7 million includes a $20.0 million
payment to MGH pursuant to a settlement agreement and amendment to license agreement, $0.3 million
related to reimbursement of certain MEEI legal costs, as awarded by the Court of Appeals for the
First Circuit, and $0.3 million in connection with the reimbursement of legal fees, accounting fees
and other amounts to resolve issues not material to QLT or its business.
During the year ended December 31, 2008 litigation expense of $0.9 million related to an
arbitrators decision in relation to our dispute with Biolitec, Inc. (Biolitec) over the
Distribution, Supply and Service Agreement between QLT Therapeutics, Inc. and Biolitec.
Gain on Sale of Long-Lived Asset
On August 29, 2008, we completed the sale of our land and building comprising our corporate
headquarters and the adjacent undeveloped parcel of land in Vancouver to Discovery Parks for
CAD$65.5 million. We recognized a gain of $21.7 million related to this transaction. The assets
sold included $25.0 million of building, $6.7 million of land, and $4.9 million of equipment.
In-process Research and Development
On December 30, 2009, we acquired QLT091568 (formerly OT-730), a type of beta blocker under
investigation for the treatment of glaucoma, from privately-held Othera Pharmaceuticals, Inc. and
its wholly-owned subsidiary, Othera Holding, Inc. for a one-time cash payment of $7.5 million. The
purchase was an acquisition of assets and as QLT091568 had not reached technological feasibility
and had no alternative future use at the time of purchase, we allocated the aggregate consideration
of $7.5 million to IPR&D.
Restructuring Charge
In January 2008, we restructured our operations and during the year ended December 31, 2008, we
provided most of the approximately 115 affected employees with severance and support to assist with
outplacement and recorded $9.5 million of restructuring charges which included a property, plant
and equipment impairment charge of $1.8 million. During the year ended December 31, 2009 we
recorded a $0.3 million adjustment to our restructuring accrual related to severance, termination
benefits and other costs as we completed the final activities associated with this restructuring.
Annualized operating savings as a result of the 2008 restructuring are approximately $11.0 million.
55
Investment and Other Income
Net Foreign Exchange Gains (Losses)
Net foreign exchange gains (losses) comprise gains (losses) from the impact of foreign exchange
fluctuations on our cash and cash equivalents, short-term investments, restricted cash, contingent
consideration, derivative financial instruments, foreign currency receivables, foreign currency
payables and, prior to its redemption in September 2008, U.S. dollar denominated convertible debt.
See the section entitled Liquidity and Capital Resources Interest and Foreign Exchange Rates
below.
Interest Income
For the year ended December 31, 2009, interest income decreased 40.1% to $4.3 million compared to
$7.2 million for the same period in 2008. The decrease was due to a substantial decline in
interest rates and a lower average cash and restricted cash balance compared to the same period in
the prior year. The decrease was partially offset by $2.7 million of interest earned on tax
refunds, interest earned on our second mortgage and the interest earned on the note receivable from
Tolmar.
Interest Expense
For the year ended December 31, 2009, $1.8 million of interest expense was entirely related to
interest expense on the post judgment accrued liability associated with the MEEI patent litigation
damage award.
For the year ended December 31, 2008, $10.3 million of interest expense comprised $3.7 million of
interest accrued on the convertible senior notes, $0.8 million of amortization of deferred
financing expenses related to the placement of these notes and $5.8 million of interest expense on
the post judgment accrued liability associated with the MEEI patent litigation damage award.
Fair Value Change in Contingent Consideration
Contingent consideration from the sale of QLT USA is revalued to fair value each reporting period,
and the $3.3 million recorded reflects the fair value change in contingent consideration for the
three months ended December 31, 2009.
Income (loss) from Discontinued Operations
On October 1, 2009, the Eligard product line was divested as part of the sale of all of the shares
of QLT USA to Tolmar for up to an aggregate $230 million. Previously, during the third quarter of
2008, we completed the sale of Aczone, a topical treatment for acne vulgaris, to Allergan Sales,
LLC pursuant to an asset purchase agreement, and we out-licensed certain Atrigel rights to Reckitt
Benckiser Pharmaceuticals Inc. pursuant to a license agreement and related asset purchase
agreement. Both Aczone and the Atrigel rights were assets of QLT USA. In accordance with the
accounting standard for discontinued operations, the results of operations related to QLT USA were
excluded from continuing operations and reported as discontinued operations for the current and
prior periods. The income from discontinued operations in 2009 was largely due to the gain on the
sale of QLT USA, while the gain on discontinued operations in 2008 was primarily related to the
gain on the Aczone sale and the out-licensing of certain Atrigel rights.
Income Taxes
The recovery of income taxes was $5.3 million for the year ended December 31, 2009, compared to a
provision of income taxes of $1.8 million for the same period in 2008. The recovery of income
taxes for 2009 was largely the result of the litigation charge related to the MGH settlement. The
provision for income taxes for 2008 was primarily the result of our Canadian operations being
profitable.
The net 2009 deferred tax asset of $18.9 million was largely the result of contingent
consideration, depreciable and amortizable assets, research and development credits as well as
other temporary differences.
As of December 31, 2009, we had a valuation allowance against specifically identified tax assets.
The valuation allowance is reviewed periodically and if managements assessment of the more likely
than not criterion for accounting purposes changes, the valuation allowance is adjusted
accordingly. See Note 16 Income Taxes in Notes to the Consolidated Financial Statements.
56
COMPARISON OF YEARS ENDED DECEMBER 31, 2008 AND 2007
For the year ended December 31, 2008, we recorded net income of $134.9 million, or $1.81 per common
share. These results compare to a net loss of $110.0 million, or a net loss of $1.47 per common
share, for the year ended December 31, 2007. The following is a detailed discussion and analysis
of our results of operations:
Revenues
Net Product Revenue
Net product revenue was determined as follows:
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, |
|
(In thousands of U.S. dollars) |
|
2008 |
|
|
2007 |
|
|
Visudyne sales by Novartis |
|
$ |
141,865 |
|
|
$ |
214,857 |
|
Less: Marketing and distribution costs(1) |
|
|
(62,213 |
) |
|
|
(103,903 |
) |
Less: Inventory costs(2) |
|
|
(11,153 |
) |
|
|
(17,508 |
) |
Less: Royalties to third parties(3) |
|
|
(3,040 |
) |
|
|
(4,546 |
) |
|
|
|
|
|
|
|
|
|
$ |
65,459 |
|
|
$ |
88,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QLTs 50% share of Novartis net proceeds from Visudyne sales |
|
$ |
32,730 |
|
|
$ |
44,450 |
|
Add: Advance on inventory costs from Novartis(4) |
|
|
7,142 |
|
|
|
11,332 |
|
Add: Royalties reimbursed to QLT(5) |
|
|
3,090 |
|
|
|
4,516 |
|
Add: Other costs reimbursed to QLT(6) |
|
|
5,350 |
|
|
|
7,448 |
|
|
|
|
|
|
|
|
Revenue from Visudyne sales |
|
$ |
48,312 |
|
|
$ |
67,746 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Less: Marketing and distribution costs |
|
|
|
This represents Novartis cost of marketing, promoting, and distributing Visudyne, as well as
certain specified costs incurred and paid for by QLT, determined in accordance with the PDT
Agreement. The costs incurred by Novartis are related to its sales force, advertising
expenses, marketing and certain administrative overhead costs. The costs incurred by us
include marketing support, legal and administrative expenses that we incurred in support of
Visudyne sales. |
|
(2) |
|
Less: Inventory costs |
|
|
|
This represents Novartis cost of goods sold related to Visudyne. It includes the cost of
bulk Visudyne we shipped to Novartis and our provisions for excess or obsolete inventory, plus
Novartis packaging and labelling costs, freight, custom duties and inventory obsolescence. |
|
(3) |
|
Less: Royalties to third parties |
|
|
|
This represents the royalty expenses we incurred and charged to Novartis pursuant to the PDT
Agreement. The amounts are calculated by us based on specified royalty rates from existing
license agreements with our licensors of certain Visudyne patent rights. |
|
(4) |
|
Add: Advance on inventory costs from Novartis |
|
|
|
This represents the amount that Novartis advanced to us for shipments of bulk Visudyne and
reimbursement for inventory obsolescence. The price of the Visudyne shipments is determined
based on the PDT Agreement between QLT and Novartis and represents our actual costs of
producing Visudyne. |
|
(5) |
|
Add: Royalties reimbursed to QLT |
|
|
|
This is related to item (3) above and represents the amounts we received from Novartis in
reimbursement for the actual royalty expenses we owe to third party licensors. |
|
(6) |
|
Add: Other costs reimbursed to QLT |
|
|
|
This represents reimbursement by Novartis to us of our portion of the marketing and
distribution costs described in (1) above. Our marketing and distribution costs include
marketing support, legal and administrative expenses that we incur in support of Visudyne
sales. |
57
For the year ended December 31, 2008, revenue from Visudyne declined by $19.4 million, or 29%, to
$48.3 million compared to $67.7 million for the year ended December 31, 2007. The decrease was
primarily due to a 34% decline in Visudyne sales as a result of decreased end user demand worldwide
due to competing therapies. For the year ended December 31, 2008, approximately 26% were in the
U.S., 32% of total Visudyne sales were in Europe, and 42% were in other markets worldwide compared
to approximately 18%, 49% and 34% in the U.S., Europe and other markets worldwide, respectively,
for the year ended December 31, 2007. Overall, the ratio of our 50% share of Novartis net proceeds
from Visudyne sales compared to total worldwide Visudyne sales was 23.1% for the year ended
December 31, 2008, up from 20.7% in the prior year.
Costs and Expenses
Cost of Sales
For the year ended December 31, 2008, cost of sales related to Visudyne decreased 22% to $14.1
million compared to $18.1 million for the same period in 2007. Cost of sales for the year ended
December 31, 2008 included a $0.9 million charge for a loss on a manufacturing purchase commitment
and a $0.9 million charge for an inventory write-down. The prior period cost of sales included a
charge of $3.1 million related to a reserve against excess inventory. Excluding the above
provision for excess inventory, cost of sales related to Visudyne decreased from $15.0 million to
$12.3 million due to the decline in Visudyne sales.
On July 18, 2007, the Court entered judgment in relation to the patent litigation with MEEI in
which it found that we were liable under Massachusetts state law for unfair trade practices, but
that such violation was not knowing or willful, and determined that we should pay to MEEI 3.01% of
past, present and future worldwide Visudyne net sales. As a result, in the third quarter of 2007,
we began accruing an amount equal to 3.01% of worldwide Visudyne net sales, pursuant to the
judgment.
Research and Development
R&D expenditures decreased 21% to $29.6 million for the year ended December 31, 2008 compared to
$37.5 million in the same period in 2007. Significant reductions in spending on early stage
research projects and reduced overhead expenses were partially offset by higher spending on punctal
plug development and Visudyne combination studies.
Selling, General and Administrative Expenses
For the year ended December 31, 2008, SG&A expenses decreased 22% to $18.2 million compared to
$23.4 million for the same period in 2007. The decrease was primarily due to cost savings from the
2008 restructuring and decreased spending on Visudyne support.
Litigation
In May 2008, we received the arbitrators decision in relation to our dispute with Biolitec over
the Distribution, Supply and Service Agreement between QLT Therapeutics, Inc. and Biolitec. As a
result, in 2008, we paid $0.9 million to Biolitec and recorded a charge of the same amount.
In July 2007, the District Court entered a judgment in the lawsuit brought against us by MEEI in
connection with the 349 patent. The District Court found that we were liable under Massachusetts
state law for unfair trade practices, but that such violation was not knowing or willful, and
determined that we should pay MEEI 3.01% of past, present and future worldwide Visudyne net sales.
The District Court also awarded interest at the Massachusetts statutory rate of 12% on the amounts
as they would have become payable from April 24, 2000. The District Court further awarded MEEI its
legal fees in an amount of $14.1 million, to which a reduction of $3.0 million previously agreed to
by MEEI will be applied. As a result, we recorded a charge of $110.2 million and accrued a
litigation reserve in the same amount.
Gain on Sale of Long-Lived Asset
On August 29, 2008, we completed the sale of our land and building comprising our corporate
headquarters and the adjacent undeveloped parcel of land in Vancouver to Discovery Parks for
CAD$65.5 million. We recognized a gain
of $21.7 million related to this transaction. The assets sold included $25.0 million of building,
$6.7 million of land, and $4.9 million of equipment.
58
In-process Research and Development
On October 18, 2007, we completed the acquisition of ForSight Newco II, Inc. for a cash payment of
$41.4 million on closing and future contingent consideration in the nature of milestone payments
and royalties on net sales of products. The milestone payments consist of a one-time $5.0 million
payment upon the initiation of a phase III clinical trial for the first product, $20.0 million on
first commercialization of each of the first two products using the proprietary technology, and
$15.0 million on first commercialization of each subsequent product. The aggregate consideration
for the acquisition of ForSight Newco II was $42.3 million, which included acquisition related
expenditures of $0.9 million. ForSight Newco II, Inc.s name was changed to QLT Plug Delivery, Inc.
on the date of acquisition.
The acquired IPR&D relates to the proprietary ocular punctal plug drug delivery system. As of the
acquisition date, the punctal plug drug delivery system had not reached technological feasibility
and would require a substantial amount of time and costs to complete. Prior to commercialization,
approvals from the FDA and other regulatory agencies are required. Accordingly, we allocated to
IPR&D and charged to expense $42.9 million representing the portion of the purchase price
attributable to the punctal plug drug delivery system (See Note 8 in the Notes to the
Consolidated Financial Statements. We calculated the charge to IPR&D by determining the fair
value of the punctal plug drug delivery system using the income approach. Under the income
approach, expected future after-tax cash flows are estimated and discounted to their net present
value at an appropriate risk-adjusted rate of return. Revenues were estimated based on relevant
market size and growth factors, expected industry trends, product sales cycles, and the estimated
life of the products underlying technology. Estimated operating expenses, and income taxes were
deducted from estimated revenues to determine estimated after-tax cash flows. These projected
future cash flows were further adjusted for risks inherent in the development life cycle. These
forecasted cash flows were then discounted based on our estimated weighted average cost of capital.
We recorded the acquisition of ForSight Newco II as a purchase of net assets in accordance with
SFAS 141, Business Combinations, which referenced the criteria in EITF 98-3, Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business for evaluating
whether a business or assets have been received in a transaction.
Restructuring Charge
In January 2008, we restructured our operations in order to concentrate our resources on Visudyne,
and on our clinical development programs related to our proprietary punctal plug delivery
technology and lemuteporfin. We provided most of the approximately 115 affected employees with
severance and support to assist with outplacement and recorded $9.5 million of restructuring
charges during the year ended December 31, 2008, which included contract termination costs and
property, plant and equipment impairment charges of approximately $1.8 million.
For the year ended December 31, 2007, restructuring charges of $0.6 million represented the
remaining effects of the restructurings that occurred in 2005 and 2006.
Investment and Other Income
Net Foreign Exchange Losses
Net foreign exchange gains (losses) comprise gains (losses) from the impact of foreign exchange
fluctuations on our cash and cash equivalents, short-term investments, restricted cash, derivative
financial instruments, foreign currency receivables, foreign currency payables and, prior to its
redemption in September 2008, U.S. dollar denominated convertible debt. See Liquidity and Capital
Resources Interest and Foreign Exchange Rates.
Interest Income
For the year ended December 31, 2008, interest income decreased 49% to $7.2 million compared to
$14.3 million for the same period in 2007. The decrease was a result of lower interest rates
combined with a lower average cash balance in 2008, as a result of the cash expended in our
acquisition of ForSight Newco II (now QPD) in October 2007, the Eligard patent litigation
settlement payment in February 2007 in connection with the TAP litigation and
redemption of our convertible senior notes in September 2008, partially offset by the proceeds
received from asset divestments.
59
Interest Expense
For the year ended December 31, 2008, $10.3 million of interest expense comprised $3.7 million of
interest accrued on the convertible senior notes, $0.8 million of amortization of deferred
financing expenses related to the placement of these notes and $5.8 million of interest expense on
the post judgment accrued liability associated with the MEEI patent litigation damage award. On
September 15, 2008, we completed the redemption of all of our convertible senior notes for 100% of
the principal amount, plus accrued and unpaid interest. For the year ended December 31, 2007, $9.0
million of interest expense comprised $5.2 million of interest accrued on the convertible senior
notes, $1.3 million of amortization of deferred financing expenses related to the placement of
these notes and, beginning in the third quarter of 2007, $2.5 million of interest expense on the
post judgment accrued liability that was associated with the MEEI patent litigation damage award.
Prior to the judgment being entered in the third quarter of 2007, our interest expense was entirely
related to our convertible debt.
Income from Discontinued Operations
Income from discontinued operations for the year ended December 31, 2008 was $144.1 million
compared to income of $15.5 million in the same period in 2007. During the third quarter of 2008,
we completed the sale of Aczone, a topical treatment for acne vulgaris, to Allergan Sales, LLC
pursuant to an asset purchase agreement, and we out-licensed certain Atrigel rights to Reckitt
Benckiser Pharmaceuticals Inc. pursuant to a license agreement and related asset sale agreement.
Both Aczone and the Atrigel rights were assets of QLT USA. The income from discontinued operations
was primarily due to pre-tax gains of $134.9 million on sale of discontinued operations, or $63.3
million net of applicable income tax expense (but before application of loss carryforwards), and
tax benefit recognition of $54.7 million related to tax assets (which include operating loss
carryforwards and research and development credit carryforwards) for which we previously applied a
valuation allowance.
In accordance with the accounting standard for discontinued operations, the results of operations,
including the gain on disposal for businesses classified as held for sale, related to the above
products were excluded from continuing operations and reported as discontinued operations for the
years ended December 31, 2008 and 2007.
Income Taxes
The provision for income taxes was $1.8 million for the year ended December 31, 2008, compared to a
recovery for income taxes of $40.4 million in 2007. The provision for income taxes for 2008 was
largely the result of our Canadian operations being profitable. The recovery of income taxes for
2007 was largely the result of the litigation charge related to the MEEI judgment.
The net 2008 deferred tax asset of $5.5 million was largely the result of depreciable and
amortizable assets, research and development credits as well as other temporary differences.
As of December 31, 2008, we had a valuation allowance against specifically identified tax assets.
The valuation allowance is reviewed periodically and if managements assessment of the more likely
than not criterion for accounting purposes changes, the valuation allowance is adjusted
accordingly.
LIQUIDITY AND CAPITAL RESOURCES
General
In 2010 and future periods, we expect our cash resources and working capital, cash flow from
operations, cash from the collection of the contingent consideration, and other available financing
resources to be sufficient to fund current product development, operating requirements, liability
requirements, potential acquisition and licensing activities, milestone payments, and repurchases
of our common shares.
60
If adequate capital is not available, our business could be materially and adversely affected.
Other factors that may affect our future capital requirements include: the status of competitors
and their intellectual property rights; the outcome of potential legal proceedings and damage
awards; levels of future sales of Eligard and our receipt of contingent consideration under the QLT
USA stock purchase agreement with Tolmar; the progress of our R&D
programs, including preclinical and clinical testing; future share repurchases, including those
pursuant to the share repurchase program announced on October 27, 2009; fluctuating or increasing
manufacturing requirements; the timing and cost of obtaining regulatory approvals; the levels of
resources that we devote to the development of manufacturing, and other support capabilities;
technological advances; the cost of filing, prosecuting and enforcing our patent claims and other
intellectual property rights; acquisition and licensing activities, milestone payments; and our
ability to establish collaborative arrangements with other organizations.
Sources and Uses of Cash
We have financed operations, product development and capital expenditures primarily through
proceeds from our commercial operations, public and private sales of equity securities, private
placement of convertible senior notes, licensing and collaborative funding arrangements, sale of
assets and interest income.
For the year ended December 31, 2009, we generated $56.6 million of cash in operations as compared
to using $9.1 million for the same period in 2008. The $65.7 million positive cash flow variance
is primarily attributable to:
|
|
|
A positive cash flow variance from tax refunds, net of tax installments, of $58.1
million; |
|
|
|
A positive cash flow variance from lower operating and inventory related expenditures of
$23.0 million; |
|
|
|
A positive cash flow variance from lower restructuring costs of $6.5 million; |
|
|
|
A positive cash flow variance from foreign exchange of $6.0 million; |
|
|
|
A positive cash flow variance from higher investment and other income of $5.2 million; |
|
|
|
A positive cash flow variance from proceeds related to the fair value change in
contingent consideration of $3.3 million; |
|
|
|
A negative cash flow variance from the litigation settlement payment to MGH of $19.1
million; |
|
|
|
A negative cash flow variance from lower cash receipts from product sales and royalties
of $7.6 million; |
|
|
|
A negative cash flow variance from the purchase of in-process research and development
of $7.5 million; and |
|
|
|
A negative cash flow variance from payment of the MEEI judgment resulting in the release
of the appeal bond and an additional $2.2 million payment to MEEI. |
During the year ended December 31, 2009, our cash flows provided by investing activities consisted
of net proceeds from sale of QLT USA of $16.5 million, proceeds on collection of the contingent
consideration of $8.4 million and the disposal of property, plant and equipment of $0.1 million,
offset by capital expenditures of $1.1 million.
For the year ended December 31, 2009, our cash flows used in financing activities consisted
primarily of common shares repurchased for $55.9 million including share repurchase costs, offset
by $0.1 million for the issuance of common shares related to the exercise of stock options.
Interest and Foreign Exchange Rates
We are exposed to market risk related to changes in interest and foreign currency exchange rates,
each of which could adversely affect the value of our current assets and liabilities. At December
31, 2009, we had $188.1 million in cash and cash equivalents. At December 31, 2009, our cash
equivalents had an average remaining maturity of 54 days. If market interest rates were to
increase immediately and uniformly by one hundred basis points from levels at December 31, 2009,
the fair value of the cash equivalents would decline by an immaterial amount due to the short
remaining maturity period.
As of December 31, 2009, the Canadian dollar was the functional currency of QLT Inc., while the
U.S. dollar was our reporting currency. As a result, U.S. dollar-denominated monetary assets and
liabilities held by QLT Inc. are revalued and give rise to foreign currency gains (losses). To
minimize these currency gains and losses, we periodically enter into forward foreign exchange
contracts to offset the difference between certain U.S. dollar-denominated assets and liabilities.
Following the sale of QLT USA, the primary objective of our balance sheet risk management program
is to protect the U.S. dollar value of our net monetary assets. Since the Canadian dollar was the
functional currency of QLT Inc., our U.S. dollar net monetary assets generated significant foreign
exchange gains/losses. During the first quarter of 2010, the functional currency of QLT Inc. was
changed to the U.S. dollar as a result of the change in our business related to the receipt of
exclusive U.S. rights to the Visudyne patents from Novartis.
61
As the functional currency of our U.S. subsidiaries is the U.S. dollar, the U.S. dollar-denominated
cash and cash equivalents holdings of our U.S. subsidiaries do not result in foreign currency gains
or losses in operations. Since QLT Inc. holds a portion of its cash and cash equivalents in its
functional currency, the Canadian dollar, we were subject to translation gains and losses. These
translation gains and losses are included as part of the cumulative foreign currency translation
adjustment, which is reported as a component of shareholders equity under accumulated other
comprehensive income.
At December 31, 2009, we had no outstanding forward foreign currency contracts.
Contractual Obligations
In the normal course of business, we enter into purchase commitments related to daily operations.
In addition, we have entered into operating lease agreements related to office space and office
equipment. The minimum annual commitments related to these agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars) |
|
Payments due by period |
|
Contractual Obligations(1) |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
|
Operating Leases (2) |
|
|
6,481 |
|
|
|
1,679 |
|
|
|
3,239 |
|
|
|
1,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Obligations (3) |
|
|
6,353 |
|
|
|
3,333 |
|
|
|
2,014 |
|
|
|
1,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,834 |
|
|
$ |
5,012 |
|
|
$ |
5,253 |
|
|
$ |
2,569 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2009, we had approximately $1.5 million of long-term liabilities associated
with uncertain tax positions. At this time, we are unable to make a reasonably reliable
estimate of the timing of future payments, if any, due to uncertainties in the timing of
future outcomes of tax audits that may arise. As a result, uncertain tax liabilities are not
included in the table above. |
(2) |
|
In conjunction with the sale of our land and building, in September 2008 we entered into a
five-year operating lease with Discovery Parks for office and laboratory space. In connection
with our U.S. operations, in May 2009 we entered into a four-year operating lease with AMB
Property, L.P, to support certain of our commercial and development operations. Operating
leases comprise our long-term leases of office space, photocopiers and postage meters. |
(3) |
|
Purchase obligations comprise minimum purchase requirements of our product supply agreements
with contract manufacturers ($0.9 million) and other outstanding purchase commitments related
to the normal course of business ($5.5 million). |
Off-Balance Sheet Arrangements
In connection with the sale of assets and businesses, we provide indemnities with respect to
certain matters, including product liability, patent infringement, contractual breaches and
misrepresentations, and we provide other indemnities to third parties under the clinical trial,
license, service, manufacturing, supply, distribution and other agreements that we enter into in
the normal course of our business. If the indemnified party were to make a successful claim
pursuant to the terms of the indemnification, we would be required to reimburse the loss. These
indemnities are generally subject to threshold amounts, specified claims periods and other
restrictions and limitations.
Except as described above and the contractual arrangements described in the Contractual Obligations
section above, we do not have any off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to investors.
62
CERTAIN CANADIAN AND U.S. FEDERAL INCOME TAX INFORMATION FOR U.S. RESIDENTS
The following is a summary of certain Canadian and U.S. federal income tax considerations
applicable to holders of common shares of the Company. These tax considerations are stated in
brief and general terms and are based on Canadian and U.S. law currently in effect. There are
other potentially significant Canadian and U.S. federal income tax considerations and provincial,
state and local income tax considerations with respect to ownership and disposition of the common
shares which are not discussed herein. The tax considerations relative to ownership and
disposition of the common shares may vary from shareholder to shareholder depending on the
shareholders particular status. Accordingly, shareholders and prospective shareholders are
encouraged to consult with their tax advisors regarding tax considerations which may apply to the
particular situation.
Canadian Federal Tax Information
Dividends paid on the common shares held by non-residents of Canada will generally be subject to
Canadian withholding tax at the rate of 25%. The Canada-U.S. Income Tax Convention (1980) (the
Convention) provides that the withholding rate on dividends paid to U.S. residents who qualify
for benefit of the Convention on the common shares is generally 15%.
Gains on sales or other dispositions of the common shares of the Company by a U.S. resident
generally are not subject to Canadian income tax, unless the shareholder realizes the gains in
connection with a business carried on in Canada with respect to such shares or if at anytime during
the 60 month period prior to the disposition, such U.S. resident, either alone or together with
persons with whom the U.S. resident does not deal at arms length, owns 25% or more of the issued
shares of any class of the capital stock of the Company. A gain realized upon the disposition of
the common shares by a U.S. resident that is otherwise subject to Canadian tax may be exempt from
Canadian tax under the Convention.
Where the common shares are disposed of by way of an acquisition of such common shares by the
Company, other than a purchase in the open market in the manner in which common shares normally
would be purchased by any member of the public in the open market, the amount paid by the Company
in excess of the paid-up capital of such common shares will be treated as a dividend and will be
subject to non-resident withholding tax as described above.
U.S. Federal Income Tax Information
Special U.S. federal income tax rules apply to U.S. Holders (as defined below) of stock of a
passive foreign investment company (a PFIC). As previously disclosed, the Company believes,
but cannot offer any assurance, that it was classified as a PFIC for one or more taxable years
prior to 2000, and that it was not a PFIC during any of the taxable years from the taxable year
ended December 31, 2000 through the taxable year ended December 31, 2007. The Company further
believes that it was a PFIC for the taxable years ended December 31, 2008 and 2009, which
significantly impacts the U.S. federal income tax consequences to U.S. Holders. The Company is
uncertain regarding its potential PFIC status for the taxable year ending December 31, 2010. The
Companys actual PFIC status for a given taxable year will not be determinable until the close of
such year and, accordingly, no assurances can be given regarding the Companys PFIC status in 2010
or any future year. See further discussion of the PFIC rules below. In addition, the following
assumes that the common shares are held as a capital asset within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the Code).
This summary is of a general nature only and is not intended for non-U.S. Holders. Furthermore, it
is not intended to constitute, and should not be construed to constitute, legal or tax advice to
any particular U.S. Holder. U.S. Holders are urged to consult their own tax advisors as to the tax
consequences in their particular circumstances.
U.S. Holders
A U.S. Holder is a holder of the Companys common shares that is (i) an individual who is a
citizen or resident of the United States for U.S. federal income tax purposes; (ii) a corporation
(or other entity taxed as a corporation for U.S. federal income tax purposes) created or organized
under the laws of the United States, any U.S. state or the District of Columbia; (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of the incomes source;
or (iv) a trust (a) if a U.S. court is able to exercise primary supervision over the trusts
administration and one or more U.S. persons, as defined under Section 7701(a)(30) of the Code, have
authority to control all of the trusts substantial decisions; or (b) that was in existence on
August 20, 1996, was treated as a U.S. person under the Code on the previous day and has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. person.
63
Sale or Other Disposition of Common Shares
Subject to different treatment pursuant to the PFIC rules discussed below, if a U.S. Holder engages
in a sale, exchange or other taxable disposition of such U.S. Holders common shares, (i) such U.S.
Holder will recognize gain or loss equal to the difference between the amount realized by such U.S.
Holder and such U.S. Holders adjusted tax basis in the common shares, (ii) any such gain or loss
will be capital gain or loss, and (iii) such capital gain or loss will be long-term capital gain
or loss if the holding period of the common shares exceeds one year as of the date of the sale.
Such gain generally is treated as U.S. source gain for U.S. foreign tax credit limitation purposes.
If the Company purchases common shares from a U.S. Holder, such transaction will be treated as a
taxable sale or exchange of the common shares by the U.S. Holder if the transaction meets certain
conditions under U.S. federal income tax rules, or otherwise will be treated as a distribution by
the Company in respect of the U.S. Holders common shares, as described below.
Distributions on Common Shares
Subject to different treatment pursuant to the PFIC rules discussed below, a distribution with
respect to our common shares generally will be treated as a dividend, taxable as ordinary income,
to the extent of the Companys current or accumulated earnings and profits, as determined under
U.S. federal income tax principles. In general, to the extent that the amount of the distribution
exceeds the Companys current and accumulated earnings and profits, the excess first will be
treated as a tax-free return of capital that will reduce the holders tax basis in the holders
common shares, and to the extent of any remaining portion in excess of such tax basis, the excess
will be taxable as capital gain. Any such capital gain will be long-term capital gain if the U.S.
Holder has held the common shares for more than one year at the time of the exchange. However,
under proposed U.S. Treasury regulations regarding the treatment of PFICs, a purchase of common
shares from a U.S. Holder by the Company that does not qualify as a sale or exchange under U.S.
federal income tax rules, and hence is treated as a distribution, is in fact treated as a
distribution in full for PFIC purposes regardless of whether there are any earnings and profits.
A dividend received by a corporate U.S. Holder generally will not be eligible for a
dividends-received deduction. In addition, a dividend received by an individual U.S. Holder will
not qualify for the 15% reduced maximum rate if the Company is a PFIC in the year in which the
dividend is paid or in the preceding year.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. The
limitation on foreign taxes eligible for credit is calculated separately with respect to specific
classes of income. For this purpose, dividends distributed by the Company with respect to our
common shares will constitute passive category income or, in the case of certain U.S. Holders,
general category income.
Passive Foreign Investment Company
A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes
in any taxable year in which, after applying relevant look-through rules with respect to the income
and assets of subsidiaries, either 75% or more of its gross income is passive income (the income
test) or 50% or more of the average value of its assets consists of assets that produce, or are
held for the production of, passive income (the asset test). For this purpose, passive income
generally includes, among other things, dividends, interest, certain rents and royalties and gains
from the disposition of passive assets.
64
The Company believes that it qualified as a PFIC for 2008 and 2009. Please be aware that the
Companys status as a PFIC can have significant adverse tax consequences for U.S. Holders.
A U.S. Holder that holds common shares while the Company is a PFIC (because either the Company was
a PFIC in 2008 or 2009 or the Company was previously a PFIC during the period that such U.S. Holder
held common shares) may be subject to increased tax liability upon the sale, exchange or other
disposition of the common shares or upon the receipt of certain distributions, regardless of
whether the Company is a PFIC in the year in which such disposition or distribution occurs. These
adverse tax consequences will not apply, however, if (i) a U.S. Holder timely filed and maintained
(and in certain cases, continues to maintain), or timely files and maintains, as the case may be, a
qualified electing fund (QEF) election to be taxed annually on the U.S. Holders pro rata portion
of the Companys earnings and profits, (ii) the U.S. Holder timely made or makes, as the case may
be, a mark-to-market election as described below, or (iii) a U.S. Holder is eligible to make a purging election and
timely does so, as described below. These adverse tax consequences include:
|
(a) |
|
An excess distribution generally is the excess of the amount a PFIC
distributes to a shareholder during a taxable year over 125% of the average amount it
distributed to the shareholder during the three preceding taxable years or, if shorter,
the part of the shareholders holding period before the taxable year. Distributions
with respect to the common shares made by the Company during the taxable year to a U.S.
Holder that are excess distributions must be allocated ratably to each day of the U.S.
Holders holding period. The amounts allocated to the current taxable year and to
taxable years prior to the first year in which the Company was classified as a PFIC are
included as ordinary income in a U.S. Holders gross income for that year. The amount
allocated to each other prior taxable year is taxed as ordinary income at the highest
tax rate in effect for the U.S. Holder in that prior year (without offset by any net
operating loss for such year) and the tax is subject to an interest charge at the rate
applicable to deficiencies in income taxes (the special interest charge). |
|
|
(b) |
|
The entire amount of any gain realized upon the sale or other disposition of
the common shares will be treated as an excess distribution made in the year of sale or
other disposition and as a consequence will be treated as ordinary income and, to the
extent allocated to years prior to the year of sale or disposition, will be subject to
the special interest charge described above. |
QEF Election. A U.S. Holder of stock in a PFIC may make a QEF election with respect to such
PFIC to elect out of the tax treatment discussed above. Generally, a QEF election, on U.S.
Internal Revenue Service (IRS) Form 8621, should be made with the filing of a U.S. Holders U.S.
federal income tax return for the first taxable year for which both (i) the U.S. Holder holds
common shares of the Company, and (ii) the Company was a PFIC. A U.S. Holder that timely makes a
valid QEF election with respect to a PFIC will generally include in gross income for a taxable year
(i) as ordinary income, such holders pro rata share of the corporations ordinary earnings for the
taxable year, and (ii) as long-term capital gain, such holders pro rata share of the corporations
net capital gain for the taxable year. However, the QEF election is available only if such PFIC
provides such U.S. Holder with certain information regarding its earnings and profits as required
under applicable U.S. Treasury regulations. The Company will provide, upon request, all
information and documentation that a U.S. Holder making a QEF election is required to obtain for
U.S. federal income tax purposes (e.g., the U.S. Holders pro rata share of ordinary income and net
capital gain, and a PFIC Annual Information Statement as described in applicable U.S. Treasury
regulations, which will be made available on the Companys website).
Deemed Sale Election. If the Company is a PFIC for any year during which a U.S. Holder holds
common shares, but the Company ceases in a subsequent year to be a PFIC (which could occur, for
example, if the Company is a PFIC for 2009 but is not a PFIC for 2010), then a U.S. Holder can make
a purging election, in the form of a deemed sale election, for such subsequent year in order to
avoid the adverse PFIC tax treatment described above that would otherwise continue to apply because
of the Company having previously been a PFIC. If such election is timely made, the U.S. Holder
would be deemed to have sold the common shares held by the holder at their fair market value, and
any gain from such deemed sale would be taxed as an excess distribution (as described above). The
basis of the common shares would be increased by the gain recognized, and a new holding period
would begin for the common shares for purposes of the PFIC rules. The U.S. Holder would not
recognize any loss incurred on the deemed sale, and such a loss would not result in a reduction in
basis of the common shares. After the deemed sale election, the U.S. Holders common shares with
respect to which the deemed sale election was made would not be treated as shares in a PFIC, unless
the Company subsequently becomes a PFIC. A U.S. Holder may also be able to make a deemed sale
election with respect to the Companys subsidiaries that are PFICs, if any. The rules regarding
deemed sale elections are very complex. U.S. Holders are strongly urged to consult their tax
advisors about the deemed sale election with regard to the Company and any subsidiaries.
Mark-to-Market Election. Alternatively, a U.S. Holder of marketable stock (as defined
below) in a PFIC may make a mark-to-market election for such stock to elect out of the adverse PFIC
tax treatment discussed above. If a U.S. Holder makes a mark-to-market election for shares of
marketable stock, the holder will include in income each year an amount equal to the excess, if
any, of the fair market value of the shares as of the close of the holders taxable year over the
holders adjusted basis in such shares. A U.S. Holder is allowed a deduction for the excess, if
any, of the adjusted basis of the shares over their fair market value as of the close of the
taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains
on the shares included in the holders income for prior taxable years. Amounts included in a U.S.
Holders income under a mark-to-market election, as well as gain on the actual sale or other
disposition of the shares, are treated as ordinary income. Ordinary loss treatment also applies to
the deductible portion of any mark-to-market loss on the shares, as well as to any loss
realized on the actual sale or disposition of the shares, to the extent that the amount of such
loss does not exceed the net mark-to-market gains previously included for such shares. A U.S.
Holders basis in the shares will be adjusted to reflect any such income or loss amounts. However,
the special interest charge and related adverse tax consequences described above for non-electing
holders may continue to apply on a limited basis if the U.S. Holder makes the mark-to-market
election after such holders holding period for the shares has begun.
65
The mark-to-market election is available only for marketable stock, which is stock that is traded
in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified
exchange or other market, as defined in applicable U.S. Treasury regulations. The Companys common
shares are listed on the TSX and quoted on NASDAQ, each of which constitutes a qualified exchange
or other market under applicable U.S. Treasury regulations. U.S. Holders of common shares are
urged to consult their tax advisors as to whether the common shares would qualify for the
mark-to-market election.
Subsidiary PFICs. To the extent any of the Companys subsidiaries is also a PFIC, a U.S.
Holder will also be deemed to own shares in such lower-tier PFIC and could incur a liability for
the deferred tax and special interest charge described above if either (i) the Company receives a
distribution from, or disposes of all or part of its interest in, the lower-tier PFIC, or (ii) the
U.S. Holder disposes of all or part of such holders common shares. In addition, the mark-to-market
election cannot be made for a subsidiary of a PFIC if the stock of such subsidiary is not itself
marketable stock.
IRS Form 8621 Reporting. If a U.S. Holder holds common shares in any year in which the
Company is a PFIC, the holder will be required to file IRS Form 8621 regarding distributions
received on the common shares and any gain realized on the disposition of the common shares, as
well as to make or maintain certain elections reportable on Form 8621.
THE APPLICABILITY AND CONSEQUENCES OF THE PFIC RULES ARE EXCEEDINGLY COMPLEX. IN ADDITION, THE
FOREGOING SUMMARY DOES NOT ADDRESS ALL OF THE POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES WITH
RESPECT TO PFIC STATUS THAT MAY BE RELEVANT TO A PARTICULAR INVESTOR IN LIGHT OF SUCH INVESTORS
PARTICULAR CIRCUMSTANCES OR THAT MAY BE RELEVANT TO INVESTORS THAT ARE SUBJECT TO SPECIAL TREATMENT
UNDER U.S. FEDERAL INCOME TAX LAW. ACCORDINGLY, INVESTORS ARE STRONGLY URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE APPLICATION OF THE PFIC RULES TO THEM AND THE ADVISABILITY OF MAKING ANY OF
THE ELECTIONS DESCRIBED ABOVE.
Outstanding Share Data
As of February 26, 2010, there were 53,789,289 common shares issued and outstanding for a total of
$506.0 million in share capital. As of February 26, 2010, we had 5,819,569 stock options
outstanding under the QLT 2000 Incentive Stock Option Plan (of which 3,868,041 were exercisable) at
a weighted average exercise price of Cdn$5.82 per share. Each stock option is exercisable for one
common share.
66
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
67
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of QLT Inc.
We have audited the accompanying consolidated balance sheets of QLT Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008 and the related consolidated statements of operations,
cash flows and changes in shareholders equity for each of the years in the three year period ended
December 31, 2009. Our audits also included the financial statement schedule listed in the Index
at Item 15. These financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of QLT Inc. and subsidiaries as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the years in the three year period
ended December 31, 2009, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2009, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10,
2010 expressed an unqualified opinion on the effectiveness of the Companys internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
Independent Registered Chartered Accountants
Vancouver, Canada
March 10, 2010
68
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
As at December 31, |
|
2009 |
|
|
2008 |
|
(In thousands of U.S. dollars) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
188,114 |
|
|
$ |
165,395 |
|
Restricted cash |
|
|
|
|
|
|
124,578 |
|
Accounts receivable (Note 4) |
|
|
9,465 |
|
|
|
11,151 |
|
Note receivable (Note 19) |
|
|
9,259 |
|
|
|
|
|
Current portion of contingent consideration (Note 18) |
|
|
33,587 |
|
|
|
|
|
Income taxes receivable |
|
|
4,879 |
|
|
|
41,801 |
|
Inventories (Note 5) |
|
|
2,874 |
|
|
|
3,163 |
|
Current portion of deferred income tax assets (Note 16) |
|
|
5,608 |
|
|
|
403 |
|
Mortgage receivable |
|
|
11,466 |
|
|
|
|
|
Assets held for sale |
|
|
|
|
|
|
72,763 |
|
Other (Note 6) |
|
|
6,052 |
|
|
|
10,474 |
|
|
|
|
|
|
|
|
|
|
|
271,304 |
|
|
|
429,728 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (Note 7) |
|
|
2,597 |
|
|
|
3,113 |
|
Deferred income tax assets (Note 16) |
|
|
13,320 |
|
|
|
5,139 |
|
Goodwill (Note 9) |
|
|
|
|
|
|
23,145 |
|
Mortgage receivable (Note 19) |
|
|
|
|
|
|
9,834 |
|
Long-term inventories and other assets (Note 10) |
|
|
14,925 |
|
|
|
20,799 |
|
Contingent consideration (Note 18) |
|
|
117,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
419,637 |
|
|
$ |
491,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,876 |
|
|
$ |
4,865 |
|
Accrued restructuring charge (Note 15) |
|
|
|
|
|
|
314 |
|
Accrued liabilities (Note 11) |
|
|
5,574 |
|
|
|
129,473 |
|
Liabilities held for sale |
|
|
|
|
|
|
8,906 |
|
Deferred revenue |
|
|
4,244 |
|
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
13,694 |
|
|
|
147,762 |
|
|
|
|
|
|
|
|
|
|
Uncertain tax position liabilities (Note 16) |
|
|
1,489 |
|
|
|
766 |
|
|
|
|
|
|
|
|
|
|
|
|
15,183 |
|
|
|
148,528 |
|
|
|
|
|
|
|
|
COMMITMENTS AND GUARANTEES (NOTE 20) |
|
|
|
|
|
|
|
|
CONTINGENCIES (NOTE 22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Share capital (Note 13) |
|
|
|
|
|
|
|
|
Authorized |
|
|
|
|
|
|
|
|
500,000,000 common shares without par value |
|
|
|
|
|
|
|
|
5,000,000 first preference shares without par
value, issuable in series |
|
|
|
|
|
|
|
|
Issued and outstanding |
|
|
|
|
|
|
|
|
Common shares |
|
|
506,023 |
|
|
|
702,221 |
|
December 31, 2009 53,789,289 shares |
|
|
|
|
|
|
|
|
December 31, 2008 74,620,328 shares |
|
|
|
|
|
|
|
|
Additional paid in-capital |
|
|
275,592 |
|
|
|
123,367 |
|
Accumulated deficit |
|
|
(480,130 |
) |
|
|
(579,564 |
) |
Accumulated other comprehensive income |
|
|
102,969 |
|
|
|
97,206 |
|
|
|
|
|
|
|
|
|
|
|
404,454 |
|
|
|
343,230 |
|
|
|
|
|
|
|
|
|
|
|
$ |
419,637 |
|
|
$ |
491,758 |
|
|
|
|
|
|
|
|
See the accompanying Notes to the Consolidated Financial Statements.
69
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
(In thousands of U.S. dollars except per share information) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Net product revenue (Note 14) |
|
$ |
42,106 |
|
|
$ |
48,312 |
|
|
$ |
67,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
20,198 |
|
|
|
14,145 |
|
|
|
18,143 |
|
Research and development |
|
|
28,590 |
|
|
|
29,568 |
|
|
|
37,510 |
|
Selling, general and administrative |
|
|
18,337 |
|
|
|
18,230 |
|
|
|
23,427 |
|
Depreciation |
|
|
1,403 |
|
|
|
2,940 |
|
|
|
5,331 |
|
Litigation (Note 22) |
|
|
20,662 |
|
|
|
864 |
|
|
|
110,162 |
|
Gain on sale of long-lived assets |
|
|
|
|
|
|
(21,666 |
) |
|
|
|
|
Purchase of in-process research and development |
|
|
7,517 |
|
|
|
|
|
|
|
42,865 |
|
Restructuring charges (Note 15) |
|
|
(263 |
) |
|
|
9,517 |
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,444 |
|
|
|
53,598 |
|
|
|
238,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(54,338 |
) |
|
|
(5,286 |
) |
|
|
(170,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign exchange gains (losses) |
|
|
7,003 |
|
|
|
643 |
|
|
|
(1,743 |
) |
Interest income |
|
|
4,339 |
|
|
|
7,249 |
|
|
|
14,278 |
|
Interest expense |
|
|
(1,848 |
) |
|
|
(10,339 |
) |
|
|
(9,026 |
) |
Fair value change in contingent consideration |
|
|
3,279 |
|
|
|
|
|
|
|
|
|
Other gains |
|
|
28 |
|
|
|
289 |
|
|
|
813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(41,537 |
) |
|
|
(7,444 |
) |
|
|
(165,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery of (provision for) income taxes (Note 16) |
|
|
5,317 |
|
|
|
(1,803 |
) |
|
|
40,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(36,220 |
) |
|
$ |
(9,247 |
) |
|
$ |
(125,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes
(Note 17) |
|
|
135,654 |
|
|
|
144,138 |
|
|
|
15,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
99,434 |
|
|
$ |
134,891 |
|
|
$ |
(109,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.64 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.68 |
) |
Discontinued operations |
|
|
2.41 |
|
|
|
1.93 |
|
|
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.77 |
|
|
$ |
1.81 |
|
|
$ |
(1.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
56,194 |
|
|
|
74,620 |
|
|
|
74,907 |
|
Diluted |
|
|
56,194 |
|
|
|
74,620 |
|
|
|
74,907 |
|
See the accompanying Notes to the Consolidated Financial Statements.
70
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
(In thousands of U.S. dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used in) provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
99,434 |
|
|
$ |
134,891 |
|
|
$ |
(109,997 |
) |
Adjustments to reconcile net income (loss) to net cash from
operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
42,865 |
|
Depreciation |
|
|
1,403 |
|
|
|
2,947 |
|
|
|
6,710 |
|
Write-down of inventory |
|
|
8,114 |
|
|
|
7,066 |
|
|
|
3,074 |
|
Write-down of fixed assets, investments and deposit |
|
|
448 |
|
|
|
1,715 |
|
|
|
403 |
|
Share-based compensation |
|
|
2,161 |
|
|
|
3,391 |
|
|
|
3,502 |
|
Amortization of deferred financing expenses |
|
|
|
|
|
|
851 |
|
|
|
1,290 |
|
Unrealized foreign exchange losses (gains) |
|
|
2,290 |
|
|
|
9,731 |
|
|
|
(22,420 |
) |
Interest on restricted cash |
|
|
(295 |
) |
|
|
(3,344 |
) |
|
|
(2,509 |
) |
Interest earned on note receivable |
|
|
(250 |
) |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
(5,510 |
) |
|
|
12,685 |
|
|
|
7,656 |
|
Gain on sale of long-lived assets |
|
|
|
|
|
|
(21,666 |
) |
|
|
(3,989 |
) |
Gain on sale of discontinued operations |
|
|
(107,363 |
) |
|
|
(134,874 |
) |
|
|
|
|
Trading securities |
|
|
|
|
|
|
|
|
|
|
58,357 |
|
Litigation |
|
|
|
|
|
|
|
|
|
|
110,162 |
|
Changes in non-cash operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Appeal bond collateral |
|
|
124,622 |
|
|
|
|
|
|
|
(118,781 |
) |
Long term deposits and other assets |
|
|
5,599 |
|
|
|
(3,720 |
) |
|
|
5,590 |
|
Accounts receivable |
|
|
8,143 |
|
|
|
(7,698 |
) |
|
|
16,800 |
|
Inventories |
|
|
(833 |
) |
|
|
(4,824 |
) |
|
|
(3,191 |
) |
Accounts payable |
|
|
(1,920 |
) |
|
|
1,397 |
|
|
|
(6,254 |
) |
Income taxes receivable / payable |
|
|
47,371 |
|
|
|
(12,455 |
) |
|
|
(44,429 |
) |
Accrued restructuring charge |
|
|
(743 |
) |
|
|
703 |
|
|
|
(2,306 |
) |
Other accrued liabilities |
|
|
(124,306 |
) |
|
|
7,179 |
|
|
|
(113,408 |
) |
Deferred revenue |
|
|
(1,723 |
) |
|
|
(3,029 |
) |
|
|
(4,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
56,642 |
|
|
|
(9,054 |
) |
|
|
(175,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investment securities |
|
|
|
|
|
|
|
|
|
|
16,435 |
|
Net proceeds from sale of property, plant & equipment net
of mortgage |
|
|
116 |
|
|
|
49,870 |
|
|
|
4,035 |
|
Net proceeds from sale of investment in QLT USA |
|
|
16,477 |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
2,307 |
|
|
|
1,689 |
|
Purchase of property, plant and equipment |
|
|
(1,094 |
) |
|
|
(516 |
) |
|
|
(2,066 |
) |
Proceeds from sale of long-lived assets |
|
|
|
|
|
|
171,181 |
|
|
|
|
|
Acquisition of ForSight Newco. II, Inc. |
|
|
|
|
|
|
|
|
|
|
(42,631 |
) |
Proceeds received on contingent consideration |
|
|
5,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,661 |
|
|
|
222,842 |
|
|
|
(22,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of convertible debt |
|
|
|
|
|
|
(172,500 |
) |
|
|
|
|
Common shares repurchased, including fees |
|
|
(55,911 |
) |
|
|
|
|
|
|
(5,878 |
) |
Issuance of common shares |
|
|
125 |
|
|
|
|
|
|
|
1,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,786 |
) |
|
|
(172,500 |
) |
|
|
(4,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,202 |
|
|
|
(2,624 |
) |
|
|
30,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
22,719 |
|
|
|
38,664 |
|
|
|
(172,322 |
) |
Cash and cash equivalents, beginning of year |
|
|
165,395 |
|
|
|
126,731 |
|
|
|
299,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
188,114 |
|
|
$ |
165,395 |
|
|
$ |
126,731 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,832 |
|
|
$ |
5,571 |
|
|
$ |
5,861 |
|
Income taxes paid |
|
|
6,305 |
|
|
|
13,997 |
|
|
|
148 |
|
71
Non-cash investing and financing activities:
|
|
|
(1) |
|
On October 1, 2009, all of the
shares of QLT USA were sold to Tolmar for up to an aggregate $230.0 million,
plus cash on hand of $118.3 million. The aggregate $230.0 million includes contingent
consideration of $200.0 million which had a fair value of $156.2 million on
October 1, 2009, and represents a non-cash investing activity. The contingent consideration
represents amounts owed on a quarterly basis in amounts equal to 80% of the royalties paid under the license agreements
with Sanofi Synthelabo Inc. (Sanofi) and MediGene Aktiengesellschaft (MediGene) for the
commercial marketing of Eligard until the earlier of QLT receiving the additional $200.0
million or October 1, 2024. During the year ended December 31, 2009, proceeds received on
collection of the contingent consideration totalled $8.4 million. Approximately $3.3 million
of the proceeds related to the fair value change in contingent consideration and were included
in cash flows provided by operating activities and the remaining proceeds of $5.2 million were
included in cash provided by investing activities. See Note 17 Discontinued Operations and
Assets held for Sale. |
See the accompanying Notes to the Consolidated Financial Statements.
72
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
(All amounts except share and |
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
per share information are |
|
Common Shares |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Shareholders |
|
expressed in thousands of U.S. dollars) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
Balance at December 31, 2006 |
|
|
75,188,980 |
|
|
$ |
708,206 |
|
|
$ |
114,724 |
|
|
$ |
83,535 |
|
|
$ |
(603,251 |
) |
|
$ |
|
|
|
$ |
303,214 |
|
Adjustment for the
adoption of FASB
Interpretation No. 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,207 |
) |
|
|
|
|
|
|
(1,207 |
) |
|
Exercise of stock
options, for cash, at
prices ranging from CAD
$7.79 to CAD $9.84 per
share and U.S. $2.89 -
U.S. $9.29 per share |
|
|
181,348 |
|
|
|
2,597 |
|
|
|
(1,344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
3,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share repurchase |
|
|
(750,000 |
) |
|
|
(8,582 |
) |
|
|
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment from
application of U.S.
dollar reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,728 |
|
|
|
|
|
|
|
28,728 |
|
|
|
28,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,997 |
) |
|
|
(109,997 |
) |
|
|
(109,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
74,620,328 |
|
|
$ |
702,221 |
|
|
$ |
119,779 |
|
|
$ |
112,278 |
|
|
$ |
(714,455 |
) |
|
$ |
|
|
|
$ |
219,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
3,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,588 |
|
|
Other comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment from
application of U.S.
dollar reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,072 |
) |
|
|
|
|
|
|
(15,072 |
) |
|
|
(15,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,891 |
|
|
|
134,891 |
|
|
|
134,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
74,620,328 |
|
|
$ |
702,221 |
|
|
$ |
123,367 |
|
|
$ |
97,206 |
|
|
$ |
(579,564 |
) |
|
$ |
|
|
|
$ |
343,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options, for cash, at
prices ranging from CAD
$2.44 to CAD $3.73 per
share and U.S. $3.78 per
share |
|
|
35,751 |
|
|
|
170 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share repurchase |
|
|
(20,866,790 |
) |
|
|
(196,368 |
) |
|
|
150,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment from
application of U.S.
dollar reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,763 |
|
|
|
|
|
|
|
5,763 |
|
|
|
5,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,434 |
|
|
|
99,434 |
|
|
|
99,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
53,789,289 |
|
|
$ |
506,023 |
|
|
$ |
275,592 |
|
|
$ |
102,969 |
(1) |
|
$ |
(480,130 |
) |
|
$ |
|
|
|
$ |
404,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2009, our accumulated other comprehensive income is entirely related to
cumulative translation adjustments from the application of U.S. dollar reporting. |
See the accompanying Notes to the Consolidated Financial Statements.
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
We are a biotechnology company dedicated to the development and commercialization of innovative
therapies for the eye. We are currently focused on our commercial product, Visudyne®,
for the treatment of wet age related macular degeneration (wet AMD) and developing our ophthalmic
product candidates.
1. BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. All amounts herein are expressed in U.S.
dollars unless otherwise noted.
In June 2009, the FASB issued the Accounting Standards Codification, (Codification). The
Codification became the single source for all authoritative generally accepted accounting
principles (GAAP) recognized by the FASB and is required to be applied to financial statements
issued for interim and annual periods ending after September 15, 2009. The Codification does not
change GAAP and did not impact our financial position or results of operations.
On October 1, 2009, the Eligard® product line was divested as part of the sale of all of
the shares of our wholly owned U.S. subsidiary, QLT USA, Inc. (QLT USA). Previously, during the
third quarter of 2008, we completed the sale of Aczone®, a topical treatment for acne
vulgaris, to Allergan Sales, LLC (Allergan) pursuant to an asset purchase agreement, and we
out-licensed certain Atrigel® rights to Reckitt Benckiser Pharmaceuticals Inc.
(Reckitt) pursuant to a license agreement and a related asset purchase agreement. In accordance
with the accounting standard for discontinued operations, the results of operations related to
these dispositions have been excluded from continuing operations and reported as discontinued
operations for the current and prior periods.
2. PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of QLT and its subsidiaries, all of
which are wholly owned. The principal subsidiaries included in our consolidated financial
statements are QLT Plug Delivery, Inc., QLT Therapeutics, Inc., QLT Ophthalmics, Inc. and QLT USA
(sold on October 1, 2009), each of which is incorporated in the state of Delaware in the United
States of America. All intercompany transactions have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting periods
presented. Significant estimates are used for, but not limited to, provisions for non-completion
of inventory, provision for obsolete inventory, assessment of the recoverability of long-lived
assets, allocation of goodwill to divested businesses, the fair value of the mortgage and note
receivable, the fair value of contingent consideration, allocation of costs to manufacturing under
a standard costing system, allocation of overhead expenses to research and development,
determination of fair value of assets and liabilities acquired in net asset acquisitions or
purchase business combinations, stock-based compensation, provisions for taxes, tax assets and
liabilities. Actual results may differ from estimates made by management.
Reporting Currency and Foreign Currency Translation
We use the U.S. dollar as our reporting currency, while the Canadian dollar is the functional
currency for QLT Inc. and the U.S. dollar is the functional currency for our U.S. subsidiaries. Our
consolidated financial statements are translated into U.S. dollars using the current rate method.
Assets and liabilities are translated at the rate of exchange prevailing at the balance sheet date.
Shareholders equity is translated at the applicable historical rates. Revenues and expenses are
translated at a weighted average rate of exchange for the respective years. Translation gains and
losses from the application of the U.S. dollar as the reporting currency are included as part of
the cumulative foreign currency translation adjustment, which is reported as a component of
shareholders equity under accumulated other comprehensive income (loss).
74
Segment Information
We operate in one industry segment, which is the business of developing, manufacturing, and
commercializing therapeutics for human health care. Our chief operating decision maker reviews our
operating results on an aggregate basis and manages our operations as a single operating segment.
Our segment information does not include the results of businesses classified as discontinued
operations.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with insignificant interest rate risk and
original maturities of three months or less at the date of purchase. We report available-for-sale
investments, if any, at fair value and include any unrealized holding gains and losses in
shareholders equity.
Inventories
Raw materials and supplies inventories are carried at the lower of actual cost and net realizable
value. Finished goods and work-in-process inventories are carried at the lower of weighted average
cost and net realizable value. We record a provision for non-completion of product inventory to
provide for potential failure of inventory batches in production to pass quality inspection. The
provision is calculated at each stage of the manufacturing process. We estimate our non-completion
rate based on past production and adjust our provision quarterly based on actual production volume
and actual non-completion experience. Inventory that is obsolete or expired is written down to its
market value if lower than cost. Inventory quantities are regularly reviewed and provisions for
excess or obsolete inventory are recorded primarily based on our forecast of future demand and
market conditions. We classify inventories that we do not expect to convert or consume in the next
year as non-current based upon an analysis of market conditions such as sales trends, sales
forecasts, sales price, and other factors.
Long-lived and Intangible Assets
We depreciate plant and equipment using the straight-line method over their estimated economic
lives, which range from three to five years. Determining the economic lives of plant and equipment
requires us to make significant judgments that can materially impact our operating results.
We periodically evaluate our long-lived assets for potential impairment. We perform these
evaluations whenever events or changes in circumstances suggest that the carrying amount of an
asset or group of assets is not recoverable. If impairment recognition criteria are met, we charge
impairments of the long-lived assets to operations.
In accounting for acquisitions, we allocate the purchase price to the fair value of the acquired
tangible and intangible assets, including in-process research and development (IPR&D). We
generally determine the value of acquired intangible assets and IPR&D using a discounted cash flow
model, which requires us to make assumptions and estimates about, among other things: the time and
investment that is required to develop products and technologies; our ability to develop and
commercialize products before our competitors develop and commercialize products for the same
indications; the amount of revenue to be derived from the products; and appropriate discount rates
to use in the analysis. Use of different estimates and judgments could yield materially different
results in our analysis, and could result in materially different asset values.
Goodwill Impairment
We are required to perform impairment tests annually or whenever events or changes in circumstances
suggest that the carrying value of an asset may not be recoverable. We made assumptions and
estimates regarding product development, market conditions and cash flows in determining the
valuation of goodwill, all of which relates to our acquisition of Atrix Laboratories, Inc which we
renamed QLT USA. During the third quarter of 2009, we performed our annual impairment test, and did
not identify any potential impairment as the fair value of our reporting unit exceeded its carrying
amount.
The entire amount of goodwill of $23.1 million was included in the disposal of all the shares of
QLT USA, and there is no goodwill at December 31, 2009.
Property, Plant and Equipment
Leasehold improvements are depreciated over the expected useful life but in no case longer than the
lease term, except when the lease renewal has been determined to be reasonably assured and failure
to renew the lease imposes a penalty on the Company. Property and equipment are recorded at cost
and amortized as follows:
|
|
|
|
|
|
|
Method |
|
Years |
Office furnishings, fixtures and other |
|
Straight-line |
|
5 |
Research and commercial manufacturing equipment |
|
Straight-line |
|
3-5 |
Computer hardware and operating system |
|
Straight-line |
|
3-5 |
75
Revenue Recognition
Our net product revenues have been derived from sales of Visudyne. Following the divestment of the
Eligard product line as part of our sale of QLT USA, net product revenues from sales of Eligard
have been reported as discontinued operations for the current and prior periods.
With respect to Visudyne, under the terms of the PDT Product Development, Manufacturing and
Distribution Agreement with Novartis (the PDT Agreement), which was amended and restated on
October 16, 2009, we are responsible for Visudyne manufacturing and product supply, and through
December 31, 2009, Novartis was responsible for marketing and distribution of Visudyne. We utilize
contract manufacturers for Visudyne production. Through December 31, 2009, our agreement with
Novartis provided that the calculation of total revenue for the sale of Visudyne be composed of
three components: (1) an advance on the cost of inventory sold to Novartis, (2) an amount equal to
50% of Novartis net proceeds from Visudyne sales to end-customers (determined according to a
contractually agreed definition), and (3) the reimbursement of other specified costs incurred and
paid for by us. We recognize revenue from the sale of Visudyne when persuasive evidence of an
arrangement exists, delivery has occurred, the end selling price of Visudyne is fixed or
determinable, and collectibility is reasonably assured. Under the calculation of revenue noted
above, this occurred when Novartis sold Visudyne to its end customers. On January 1, 2010 we
received from Novartis the exclusive U.S. rights to the Visudyne patents to sell and market
Visudyne in the U.S. As a result, we have established a commercial presence in the U.S., operating
a direct marketing and sales force through our U.S. subsidiary, QLT Ophthalmics, Inc., and have
rights to all end-user revenue derived from Visudyne sales in the U.S. Novartis continues to
market and sell Visudyne outside the U.S. and will pay us a royalty on net sales of the product.
Commencing January 1, 2010, we will be recording net product revenue on sales in the U.S., and
royalties from Novartis on sales outside the U.S. Our revenue from Visudyne will fluctuate
depending on our and Novartis ability to market and distribute Visudyne.
Through December 31, 2009, we did not offer rebates or discounts in the normal course of business
and did not experience any material product returns; accordingly, we did not provide an allowance
for rebates, discounts and returns.
Discontinued Operations
On October 1, 2009, the Eligard product line was divested as part of the sale of all of the shares
of our wholly- owned U.S. subsidiary, QLT USA. Previously, under the terms of the license
agreements with QLT USAs commercial licensees, we were responsible for Eligard manufacturing and
supply and received from our commercial licensees an agreed upon sales price upon shipment to them.
We also earned royalties from certain commercial licensees based upon their sales of Eligard
products to end customers, which were included in royalty revenue. We recognized net product
revenue from Eligard product sales upon the existence of persuasive evidence of an arrangement,
upon product shipment and title transfer to our commercial licensees, upon reasonable assurance of
collectibility, and upon the price being fixed or determinable. Under this calculation of revenue,
we recognized net product revenue from Eligard at the time of shipment to our commercial licensees.
Royalties from Eligard have been reported as discontinued operations for the current and prior
periods. Previously, we recognized royalties from Eligard when product was shipped by certain of
our commercial licensees to end customers based on royalty rates specified in our agreements with
them. Generally, royalties were based on net product sales (gross sales less discounts, allowances
and other items) and calculated based on information supplied to us by our commercial licensees.
Inventory and Cost of Sales
Following the divestment of the Eligard product line as part of our sale of QLT USA, cost of sales
related to Eligard have been reported as discontinued operations for the current and prior periods.
Visudyne cost of sales, consisting of expenses related to the production of bulk Visudyne, royalty
expense on Visudyne sales and ongoing damages related to the MEEI judgment, are charged against
earnings in the period that Novartis sells to end customers.
76
Losses on manufacturing purchase commitments are immediately charged to cost of sales. We
utilize a standard costing system, which includes a reasonable allocation of overhead expenses, to
account for inventory and cost of sales, with adjustments being made periodically to reflect
current conditions. Our standard costs are estimated based on managements best estimate of annual
production volumes and material costs. Overhead expenses comprise
direct and indirect support activities related to manufacturing and involve costs associated with
activities such as quality inspection, quality assurance, supply chain management, safety and
regulatory. Overhead expenses are allocated to inventory at various stages of the manufacturing
process under a standard costing system, and eventually to cost of sales as the related products
were sold to our commercial licensees or, in the case of Visudyne, through December 31, 2009, by
Novartis to third parties. We record a provision for the non-completion of product inventory based
on our history of batch completion. The provision is calculated at each stage of the manufacturing
process. Inventory that is obsolete or expired is written down to its market value if lower than
cost. Inventory quantities are regularly reviewed and provisions for excess or obsolete inventory
are recorded based on forecasted future demand and market conditions.
Discontinued Operations
Cost of sales related to the production of various Eligard products were charged against earnings
in the period of the related product sale to our commercial licensees.
Stock-Based Compensation
On January 1, 2006, we adopted SFAS 123 Revised, Share-Based Payment, which was later superceded by
the FASB codification and included in ASC topic 718, using the modified prospective method. ASC
topic 718 requires stock-based compensation to be recognized as compensation expense in the
statement of earnings based on their fair values on the date of the grant, with the compensation
expense recognized over the period in which a grantee is required to provide service in exchange
for the stock award. Compensation expense recognition provisions are applicable to new awards and
to any awards modified, repurchased or cancelled after the adoption date.
For the current period and prior periods, we recorded stock-based compensation expense for awards
granted prior to, but not yet vested, as of January 1, 2006, as if the fair value method required
for pro forma disclosure was in effect for expense recognition purposes, adjusted for estimated
forfeitures. For stock-based awards granted after January 1, 2006, we have recognized compensation
expense based on the estimated grant date fair value method using the Black-Scholes valuation
model, adjusted for estimated forfeitures. When estimating forfeitures, we consider voluntary
termination behaviors as well as trends of actual option forfeitures.
The company has a Directors Deferred Share Unit Plan (DDSU Plan) for non-employee directors.
Under the DDSU Plan, at the discretion of the Board of Directors, non-employee directors can
receive all or a percentage of their equity-based compensation in the form of deferred share units
(DSUs), each of which has a value equal to the closing price of QLTs common shares on the
Toronto Stock Exchange on the trading day immediately prior to the Board approval of the grant. A
vested DSU is convertible into cash only (no share is issued), and is automatically converted after
the non-employee director ceases to be a member of the Board unless the director is removed from
the Board for just cause. The DSUs vest in equal amounts over 36 months beginning on the first day
of the first month after the grant date. The value of a vested DSU, when converted to cash, is
equivalent to the closing price of a QLT common share on the date the conversion takes place. The
obligations for future settlement of DSUs are accrued as compensation expense as the DSUs vest and
each reporting period obligations are revalued for changes in the market value of QLTs common
shares.
Research and Development
Research and development costs including acquired in-process research and development are expensed
as incurred. These costs generally consist of direct and indirect expenditures, including a
reasonable allocation of overhead expenses, associated with our various research and development
programs. Overhead expenses comprise general and administrative support provided to the research
and development programs and involve costs associated with support activities such as rent,
facility maintenance, utilities, office services, information technology, legal, accounting and
human resources. Patent application, filing and defense costs are expensed as incurred. Research
and development costs also include funding provided to third parties for joint research and
development programs.
Income Taxes
Income taxes are reported using the asset and liability method, whereby deferred tax assets and
liabilities are recognized for the future tax consequences attributable to: (i) differences between
the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases, and (ii) operating loss and tax credit carry forwards using applicable enacted tax
rates. An increase or decrease in these tax rates will increase or decrease the carrying value of
future net tax assets resulting in an increase or decrease to net income. Income tax credits, such
as investment tax credits, are included as part of the provision for income taxes. The realization
of our deferred tax assets is primarily dependent on generating sufficient taxable income prior to
expiration of any loss carry forward balance. A valuation allowance is provided when it is more
likely than not that a deferred tax asset may not be
realized. Changes in valuation allowances are included in our tax provision, or within
discontinued operations in the period of change.
77
Derivative Financial Instruments
Periodically, we enter into foreign exchange contracts to manage exposure to currency rate
fluctuations related to our expected future net earnings and cash flows. The foreign exchange
contracts are not designated as hedging instruments, and as a result all foreign exchange contracts
are marked to market and the resulting gains and losses are recorded in the statement of income in
each reporting period. There were no foreign exchange contracts outstanding at December 31, 2009.
Discontinued Operations
We consider assets to be held for sale when management approves and commits to a formal plan to
actively market the assets for sale. Upon designation as held for sale, the carrying value of the
assets is recorded at the lower of the carrying value or the estimated fair value. We cease to
record depreciation or amortization expense at that time.
The results of operations, including the gain on disposal for businesses classified as held for
sale are excluded from continuing operations and reported as discontinued operations for the
current and prior periods. We do not expect any continuing involvement with these businesses
following their sales.
Contingent Consideration
Contingent consideration arising from the sale of QLT USA is measured at fair value. The contingent
consideration is revalued at each reporting period and changes are included in continuing
operations.
Contingencies Related to Legal Proceedings
We record a liability in the consolidated financial statements for actions when a loss is known or
considered probable and the amount can be reasonably estimated. If the loss is not probable or a
range cannot reasonably be estimated, no liability is recorded in the consolidated financial
statements. Details of our legal proceedings are described in Note 22 Contingencies.
Net Income (Loss)Per Common Share
Basic net income (loss) per common share is computed using the weighted average number of common
shares outstanding during the period. Diluted net income (loss) per common share is computed in
accordance with the treasury stock method and if converted method, as applicable, which uses the
weighted average number of common shares outstanding during the period and also includes the
dilutive effect of potentially issuable common stock from outstanding stock options, and
convertible debt. In addition, the related interest and amortization of deferred financing fees on
convertible debt (net of tax), when dilutive, are added back to income, since these would not be
paid or incurred if the convertible senior notes were converted into common shares.
78
The following table sets out the computation of basic and diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars, except per share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(36,220 |
) |
|
$ |
(9,247 |
) |
|
$ |
(125,537 |
) |
Income from discontinued operations, net of income
taxes |
|
|
135,654 |
|
|
|
144,138 |
|
|
|
15,540 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
99,434 |
|
|
$ |
134,891 |
|
|
$ |
(109,997 |
) |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible senior notes interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) |
|
$ |
99,434 |
|
|
$ |
134,891 |
|
|
$ |
(109,997 |
) |
|
|
|
|
|
|
|
|
|
|
Denominator: (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
56,194 |
|
|
|
74,620 |
|
|
|
74,925 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
56,250 |
|
|
|
74,620 |
|
|
|
74,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.64 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.68 |
) |
Discontinued operations |
|
|
2.41 |
|
|
|
1.93 |
|
|
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.77 |
|
|
$ |
1.81 |
|
|
$ |
(1.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.64 |
) |
|
$ |
(0.12 |
) |
|
$ |
(1.68 |
) |
Discontinued operations |
|
|
2.41 |
|
|
|
1.93 |
|
|
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.77 |
|
|
$ |
1.81 |
|
|
$ |
(1.47 |
) |
|
|
|
|
|
|
|
|
|
|
Excluded from the calculation of diluted net income per common share for the year ended December
31, 2009 were 4,833,050 shares (in 2008 5,341,694 shares, in 2007 5,645,755 shares) related to
stock options because their effect was anti-dilutive. On September 15, 2008, we completed the
redemption of all $172.5 million outstanding principal amount of our 3% convertible senior notes
due 2023. For the year ended December 31, 2008, 6,851,234 shares related to the conversion of the
convertible senior notes were excluded because their effect was anti-dilutive. For the year ended
December 31, 2007, 9,692,637 shares related to the conversion of the convertible senior notes were
also excluded because their effect was anti-dilutive.
Subsequent Events
We have evaluated subsequent events through the report issuance date, March 10, 2010, for items
that should be recognized or disclosed in these financial statements.
Recently Issued Accounting Standards
In October 2009, the FASB issued EITF 08-01, Revenue Arrangements with Multiple Deliverables
(currently within the scope of FASB Accounting Standards Codification (ASC) Subtopic 605-25). This
statement provides principles for allocation of consideration among its multiple-elements, allowing
more flexibility in identifying and accounting for separate deliverables under an arrangement. The
EITF introduces an estimated selling price method for valuing the elements of a bundled arrangement
if vendor-specific objective evidence or third-party evidence of selling price is not available,
and significantly expands related disclosure requirements. This standard is effective on a
prospective basis for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and
early application is permitted. We do not expect the adoption of this pronouncement to have a
material impact on our financial condition, results of operations or cash flows.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Asset, an
amendment of FASB Statement No. 140, which was later superseded by the FASB Codification and
included in ASC topic 860. Among other items the provision removes the concept of a qualifying
special-purpose entity and clarifies that the objective of paragraph ASC 860-10-40-4 is to
determine whether a transferor and all of the entities included in the transferors financial
statements being presented have surrendered control over transferred financial assets. This
pronouncement is effective January 1, 2010. We do not expect the adoption of this pronouncement to
have a material impact on our financial condition, results of operations or cash flows.
79
In June 2009, the FASB issued SFAS No. 167, Amending FASB interpretation No. 46(R), which was later
superseded by the FASB Codification and included in ASC topic 810. The provisions of ASC 810
provide guidance in determining whether an enterprise has a controlling financial interest in a variable interest
entity. This determination identifies the primary beneficiary of a variable interest entity as the
enterprise that has both the power to direct the activities of a variable interest entity that most
significantly impacts the entitys economic performance, and the obligation to absorb losses or the
right to receive benefits of the entity that could potentially be significant to the variable
interest entity. This pronouncement also requires ongoing reassessments of whether an enterprise is
the primary beneficiary and eliminates the quantitative approach previously required for
determining the primary beneficiary. New provisions of this pronouncement are effective January 1,
2010. We do not expect the adoption of this pronouncement to have a material impact on our
financial condition, results of operations or cash flows.
Recently Adopted Accounting Standards
In December 2007, the FASB issued SFAS 141R, Business Combinations (SFAS 141R) which was later
superseded by the FASB codification and included in ASC topic 805. Effective January 1, 2009, we
adopted the newly issued accounting standard for business combinations. This standard retains the
purchase method of accounting for acquisitions but made a number of changes including the
recognition of assets acquired and liabilities assumed arising from contingencies, the
capitalization of in-process research and development at fair value, and the expensing of
acquisition-related costs as incurred. Due to the fact that this guidance is applicable to
acquisitions completed after January 1, 2009 and we did not have any business combinations in 2009,
the adoption did not impact our financial position or results of operations. The standard also
amended accounting for uncertainty in income taxes as required by the Income Tax Topic of the
Codification. Previously, accounting standards generally required post-acquisition adjustments
related to business combination deferred tax asset valuation allowances and liabilities for
uncertain tax positions to be recorded as an increase or decrease to goodwill. This new standard
does not permit this accounting and, generally, requires any such changes to be recorded in current
period income tax expense. Thus, all changes to valuation allowances and liabilities for uncertain
tax positions established in acquisition accounting, whether or not the business combination was
accounted for under this guidance, will be recognized in current period income tax expense. The
adoption of the amendment to the income tax topic did not have a material impact on our financial
position, results of operations or cash flows.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research Bulletin No. 51 (SFAS 160) which was later
superseded by the FASB codification and included in ASC subtopic 810-10. Effective January 1, 2009,
we adopted the newly issued accounting standard for noncontrolling interests. This standard
requires an entity to classify noncontrolling interests in subsidiaries as a separate component of
equity, to clearly present the consolidated net income attributable to the parent and the
noncontrolling interest on the face of the consolidated statement of income, and to account for
transactions between an entity and noncontrolling interests as equity transactions. Additionally,
when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former
subsidiary should be initially measured at fair value. The adoption of this standard did not have a
material impact on our financial condition, results of operations or cash flows.
In February 2008, the FASB issued FASB FSP 157-2, Effective Date of FASB Statement No. 157, (SFAS
157) which was later superseded by the FASB codification and included in ASC topic 820. Effective
January 1, 2009, we adopted the newly issued accounting standard for fair value measurements and
disclosures with respect to non-financial assets and non-financial liabilities, except those
recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). These non-financial items include assets and liabilities such as reporting units
measured at fair value in a goodwill impairment test and non-financial long-lived assets measured
at fair value for an impairment assessment. The adoption of this standard did not have a material
impact on our financial position, results of operations or cash flows. See Note 19 Financial
Instruments and Concentration of Credit Risk.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS 133 (SFAS 161), which was later superseded by the FASB
codification and included in ASC topic 815. Effective January 1, 2009, we adopted the newly issued
accounting standard for disclosures about derivative instruments and hedging activities. Under
this standard, entities are required to provide enhanced disclosures relating to: (a) how and why
an entity uses derivative instruments; (b) how derivative instruments and related hedge items are
accounted for under the accounting standard for derivative instruments and hedging activities; and
(c) how derivative instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. Since this standard requires only additional disclosures
concerning derivatives and hedging activities, adoption did not affect our financial condition,
results of operations or cash flows.
80
In April 2008, the FASB issued FASB Staff Position SFAS 157-4, Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed (FSP FAS 157-4), which was later superseded by the
FASB codification and
included in ASC topic 820. Effective April 1, 2009, we adopted the newly issued accounting
standard for determining whether a market is not active and a transaction is not distressed. This
standard provides additional authoritative guidance in determining whether a market is active or
inactive, and whether a transaction is distressed, is applicable to all assets and liabilities
(i.e. financial and non-financial) and will require enhanced disclosures. The adoption of this
standard did not have a material impact on our financial condition, results of operations or cash
flows.
In April 2008, the FASB issued FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2,
Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2), FAS 124-2, and
EITF 99-20-2, which were later superseded by the FASB codification and included in ASC topic 320.
Effective April 1, 2009, we adopted the newly issued accounting standards for recognition and
presentation of other-than-temporary impairments. These standards provide greater clarity about
the credit and noncredit component of an other-than-temporary impairment event and more effectively
communicate when an other-than-temporary impairment event has occurred. These accounting standards
apply to debt securities. The adoption of these standards did not have a material impact on our
financial condition, results of operations or cash flows.
In April 2008, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (FSP FAS 107-1) and APB 28-1, which were later
superseded by the FASB codification and included in ASC topic 825. Effective April 1, 2009, we
adopted the newly issued accounting standard for interim disclosures about fair value of financial
instruments. This standard requires disclosures about fair value of financial instruments in
interim as well as in annual financial statements. The adoption of this standard did not have a
material impact on our financial condition, results of operations or cash flows.
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles
(SFAS 162) which was later superseded by the FASB codification and included in ASC topic 105.
Effective July 1, 2009, we adopted the newly issued accounting standard related to the hierarchy of
generally accepted accounting principles. This standard identifies the sources of accounting
principles and the framework for selecting the principles to be used in the preparation of
financial statements. The adoption of this standard did not have a material impact on our
financial condition, results of operations or cash flows.
In February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure
Requirements. This ASU amends ASC 855 (formerly Statement 165) to exempt SEC filers from disclosing
the date through which subsequent events have been evaluated. Previously, ASC 855 established
general standards to account for and disclose events that occur after the balance sheet date but
before issuance of or availability for issuance of financial statements. The adoption of this
standard did not have a material impact on our financial condition, results of operations or cash
flows.
4. ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Visudyne |
|
$ |
9,293 |
|
|
$ |
11,056 |
|
Trade and other |
|
|
172 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
$ |
9,465 |
|
|
$ |
11,151 |
|
|
|
|
|
|
|
|
Accounts receivable Visudyne represents amounts due from Novartis and consists of our 50% share
of Novartis net proceeds from Visudyne sales, amounts due from the sale of bulk Visudyne to
Novartis and reimbursement of specified royalty and other costs.
81
5. INVENTORIES
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
$ |
231 |
|
|
$ |
49 |
|
Work-in-process |
|
|
29,782 |
|
|
|
26,629 |
|
Finished goods |
|
|
|
|
|
|
|
|
Provision for excess inventory |
|
|
(11,560 |
) |
|
|
(2,471 |
) |
Provision for non-completion of inventory |
|
|
(2,185 |
) |
|
|
(1,874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,268 |
|
|
$ |
22,333 |
|
|
|
|
|
|
|
|
|
|
Long-term inventory |
|
|
(13,394 |
) |
|
|
(19,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current inventory |
|
$ |
2,874 |
|
|
$ |
3,163 |
|
|
|
|
|
|
|
|
We review our inventory quantities against our forecast of future demand and market conditions
and if necessary, provide a reserve for potential excess or obsolete inventory. Our provision for
excess inventory of $11.6 million, all of which was applied against our long-term inventory, has
been determined based on our forecast of future Visudyne demand.
We record a provision for non-completion of inventory to provide for the potential failure of
inventory batches in production to pass quality inspection. During the year ended
December 31, 2009, there were no charges against the provision for non-completion of inventory as a
result of batch failures.
We classify inventories that we do not expect to convert or consume in the next year as non-current
based upon an analysis of market conditions such as sales trends, sales forecasts, sales price, and
other factors (See Note 10 Long-Term Inventories and Other Assets.)
6. OTHER CURRENT ASSETS
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Inventory in transit held by Novartis |
|
$ |
5,030 |
|
|
$ |
5,555 |
|
Foreign exchange contracts |
|
|
|
|
|
|
3,542 |
|
Prepaid expenses and other |
|
|
1,022 |
|
|
|
1,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,052 |
|
|
$ |
10,474 |
|
|
|
|
|
|
|
|
Inventory in transit comprises finished goods that have been shipped to and are held by Novartis.
Under the terms of the PDT Agreement, upon delivery of inventory to Novartis, we are entitled to an
advance equal to our cost of inventory. The inventory is also included in deferred revenue at
cost, and will be recognized as revenue in the period of the related product sale and delivery by
Novartis to third parties, where collection is reasonably assured. Effective January 1, 2010,
under the Amended and Restated PDT Product Development, Manufacturing and Distribution Agreement,
deferred revenue related to inventory shipped to Novartis for sales outside the U.S. will be
recognized as revenue.
82
7. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net |
|
(In thousands of U.S. dollars) |
|
Cost |
|
|
Depreciation |
|
|
Book Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
$ |
244 |
|
|
$ |
58 |
|
|
$ |
186 |
|
Office furnishings, fixtures, and other |
|
|
351 |
|
|
|
40 |
|
|
|
311 |
|
Research equipment |
|
|
1,710 |
|
|
|
945 |
|
|
|
765 |
|
Commercial manufacturing equipment |
|
|
3,048 |
|
|
|
2,872 |
|
|
|
176 |
|
Computer hardware and operating system |
|
|
12,359 |
|
|
|
11,200 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,712 |
|
|
$ |
15,115 |
|
|
$ |
2,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
Accumulated |
|
|
Net |
|
(In thousands of U.S. dollars) |
|
Cost |
|
|
Depreciation |
|
|
Book Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvement |
|
$ |
169 |
|
|
$ |
11 |
|
|
$ |
158 |
|
Office furnishings, fixtures, and other |
|
|
38 |
|
|
|
24 |
|
|
|
14 |
|
Research equipment |
|
|
1,124 |
|
|
|
666 |
|
|
|
458 |
|
Commercial manufacturing equipment |
|
|
3,499 |
|
|
|
2,852 |
|
|
|
647 |
|
Computer hardware and operating system |
|
|
10,748 |
|
|
|
8,912 |
|
|
|
1,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,578 |
|
|
$ |
12,465 |
|
|
$ |
3,113 |
|
|
|
|
|
|
|
|
|
|
|
8. ACQUISITIONS AND DIVESTITURES
Acquisition of OT-730
On December 30, 2009, we acquired intellectual property related to QLT091568 (formerly OT-730),
including patent applications and other intellectual property, FDA filings, data, and inventory,
from privately-held Othera Pharmaceuticals, Inc. and its wholly-owned subsidiary, Othera Holding,
Inc. for a one-time cash payment of $7.5 million. The purchase of QLT091568 does not qualify as a
business in accordance with ASC 805. QLT091568, a type of beta blocker under investigation for the
treatment of glaucoma, has not reached technological feasibility and has no alternative future use.
Accordingly, we allocated the aggregate consideration of $7.5 million to IPR&D and charged the
amount to expense.
Acquisition of ForSight Newco II
On October 18, 2007, we completed the acquisition of ForSight Newco II, Inc. for a cash payment of
$41.4 million on closing and future contingent consideration in the nature of milestone payments
and royalties on net sales of products. The milestone payments consist of a one-time $5.0 million
payment upon the initiation of a phase III clinical trial for the first product, $20.0 million on
first commercialization of each of the first two products using the proprietary technology, and
$15.0 million on first commercialization of each subsequent product. ForSight Newco II owns certain
patent applications with respect to its proprietary ocular punctal plug drug delivery system. On
October 18, 2007, ForSight Newco II, Inc.s name was changed to QLT Plug Delivery, Inc.
83
The aggregate consideration for the acquisition of ForSight Newco II was $42.3 million, which
included acquisition related expenditures of $0.9 million. The total consideration, including
acquisition related expenditures, was allocated based on managements assessment as to the
estimated fair values of the acquired assets and liabilities on the acquisition date. The
allocation of the purchase price to the fair value of the acquired tangible and intangible assets
and liabilities was as follows:
|
|
|
|
|
(In thousands of U.S. dollars) |
|
|
|
|
|
|
|
|
|
Purchase Price |
|
|
|
|
Cash paid |
|
$ |
(41,447 |
) |
Acquisition costs |
|
|
(891 |
) |
|
|
|
|
|
|
|
$ |
(42,338 |
) |
|
|
|
|
|
|
|
|
|
Assets & Liabilities Acquired |
|
|
|
|
Net working capital |
|
$ |
(83 |
) |
Property & equipment |
|
|
108 |
|
Accrued change of control bonus |
|
|
(552 |
) |
In-process R&D |
|
|
42,865 |
|
|
|
|
|
|
|
|
$ |
42,338 |
|
|
|
|
|
The IPR&D related to the proprietary ocular punctal plug drug delivery system. As of the
acquisition date, the punctal plug drug delivery system had not reached technological feasibility
and required substantial amount of time and costs to complete. Prior to commercialization,
approvals by the U.S. FDA and other regulatory agencies are still required. Accordingly, we
allocated to IPR&D and charged to expense $42.9 million representing the portion of the purchase
price attributable to the punctal plug drug delivery system.
We calculated the charge to IPR&D by determining the fair value of the punctal plug drug delivery
system using the income approach. Under the income approach, expected future after-tax cash flows
are estimated and discounted to their net present value at an appropriate risk-adjusted rate of
return. Revenues were estimated based on relevant market size and growth factors, expected
industry trends, product sales cycles, and the estimated life of the products underlying
technology. Estimated operating expenses, and income taxes were deducted from estimated revenues to
determine estimated after-tax cash flows. These projected future cash flows were further adjusted
for risks inherent in the development life cycle. These forecasted cash flows were then discounted
based on our estimated weighted average cost of capital.
Sale of QLT USA
On October 1, 2009, we divested our Eligard product line as part of the sale of all of the shares
of QLT USA to TOLMAR Holding, Inc. (Tolmar) for up to an aggregate $230.0 million, plus cash on
hand of $118.3 million (See Note 17 Discontinued Operations and Assets Held for Sale).
Sale of Aczone and out-license of certain Atrigel rights
During the third quarter of 2008 through QLT USA, we completed the sale of Aczone, a topical
treatment for acne vulgaris, to Allergan pursuant to an asset purchase agreement, and we
out-licensed certain Atrigel rights to Reckitt pursuant to a license agreement and a related asset
purchase agreement (See Note 17 Discontinued Operations and Assets held for Sale).
Sale of Land and Building
On August 29, 2008, we completed the sale of our land and building comprising our corporate
headquarters and the adjacent undeveloped parcel of land in Vancouver to Discovery Parks for
CAD$65.5 million. In conjunction with the sale, we entered into a five-year lease with Discovery
Parks for approximately 30% of the facility and provided a two-year, 6.5% interest-only, second
mortgage in the amount of CAD$12.0 million.
All of the gain on the sale of our land and building was recorded in the three months ended
September 30, 2008. We relinquished the right to substantially all of the property sold, leasing
back a minor portion, and the sale and leaseback were treated as separate transactions based on
their respective terms. Primarily as a result of the sale, certain equipment is no longer used in
operations, resulting in impairment losses of $3.1 million which have been included in the net gain
on sale of long-lived assets. The two-year, 6.5% interest-only, second mortgage in the amount of
CAD$12.0 million is recorded as a mortgage receivable and is carried at amortized cost.
84
9. GOODWILL AND INTANGIBLE ASSETS
As discussed in Note 3 Significant Accounting Policies, we are required to perform impairment
tests annually or whenever events or changes in circumstances suggest that the carrying value of an
asset may not be recoverable. We look for the existence of facts and circumstances, either
internal or external, which indicate that the carrying value of goodwill may not be recovered. We
did not identify any potential impairment of goodwill during 2009 and 2008 as the fair value of our
reporting unit exceeded its carrying amount.
During 2009, we allocated the remaining goodwill of $23.1 million to the disposition of QLT USA.
During 2008, we allocated $27.8 million of goodwill to the sale of Aczone, and $4.6 million of
goodwill to the out-license of certain Atrigel rights and related sale of equipment, based on the
relative fair values of the divested businesses in relation to the business remaining within the
reporting unit.
|
|
|
|
|
(In thousands of U.S. dollars) |
|
Goodwill |
|
Cost |
|
$ |
409,586 |
|
Accumulated impairment losses |
|
|
(305,628 |
) |
Reduction in valuation allowance against deferred tax assets* |
|
|
(3,738 |
) |
Allocation to cost of business disposals |
|
|
(5,317 |
) |
Balance as of December 31, 2007 |
|
$ |
94,903 |
|
|
|
|
|
|
Reduction in valuation allowance against deferred tax assets* |
|
|
(39,354 |
) |
|
|
|
|
|
Allocation to cost of business dispositions discontinued
operations (sale of Aczone, out-license of certain Atrigel
rights and related sale of Atrigel equipment) |
|
|
(32,404 |
) |
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
$ |
23,145 |
|
Allocation to cost of business disposition discontinued
operations (sale of QLT USA) |
|
|
(23,145 |
) |
|
|
|
|
|
Balance as of December 31, 2009 |
|
$ |
|
|
|
|
|
|
|
|
|
* |
|
We reduced our valuation allowance relating to various tax assets (including tax loss
carryforwards and research and development credit carryforwards) that were acquired upon the
acquisition of Atrix Laboratories, Inc. in 2004. (See Note 16 Income Taxes.) |
10. LONG-TERM INVENTORIES AND OTHER ASSETS
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Inventory, net of provisions |
|
$ |
13,394 |
|
|
$ |
19,170 |
|
Other |
|
|
1,531 |
|
|
|
1,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,925 |
|
|
$ |
20,799 |
|
|
|
|
|
|
|
|
85
11. ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
Litigation charge MEEI judgment (Note 22) |
|
$ |
|
|
|
$ |
125,119 |
|
Royalties |
|
|
508 |
|
|
|
713 |
|
Ongoing damages MEEI judgment (Note 22) |
|
|
765 |
|
|
|
|
|
Compensation |
|
|
3,715 |
|
|
|
3,218 |
|
Interest |
|
|
10 |
|
|
|
418 |
|
Other |
|
|
576 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,574 |
|
|
$ |
129,473 |
|
|
|
|
|
|
|
|
12. FOREIGN EXCHANGE FACILITY
We have a foreign exchange facility for the sole purpose of entering into foreign exchange
contracts. It allows us to enter into a maximum of $300.0 million in forward foreign exchange
contracts for terms up to 15 months, or in the case of spot foreign exchange transactions, a
maximum of $70.0 million. The facility requires security in the form of cash or money market
instruments based on the contingent credit exposure for any outstanding foreign exchange
transactions. At December 31, 2009, there was no collateral pledged as security for this facility,
as we had no outstanding foreign exchange transactions.
13. SHARE CAPITAL
|
(a) |
|
Authorized Shares |
|
|
|
|
There were no changes to the authorized share capital of QLT during the three-year period
ended December 31, 2009. |
|
|
(b) |
|
Share Buy-Back Program |
|
|
|
|
On June 4, 2007, our Board of Directors announced a share buy-back program pursuant to
which we had the right to purchase up to $50.0 million of our outstanding common shares or
up to 5.7 million common shares over a 12-month period commencing on June 11, 2007. The
share purchases were to be made as a normal course issuer bid. All purchases were to be
effected in the open market through the facilities of the TSX or NASDAQ, and in accordance
with all regulatory requirements. Cumulative purchases under this program between June 11,
2007 and June 10, 2008 were 750,000 shares at an average price of $7.82, for a total cost of
$5.9 million. |
|
|
|
|
On December 1, 2008, we announced our decision to proceed with a modified Dutch Auction
tender offer to purchase a number of shares of our common stock not to exceed an aggregate
purchase price of $50.0 million. Under this Dutch Auction tender offer, shareholders were
invited to tender all or a portion of their shares at a price per share that was not less
than $2.20 and not greater than $2.50. Based on the number of shares tendered and the prices
specified by the tendering shareholders, we determined the lowest price per share within the
range that allowed us to buy $50.0 million of shares properly tendered. The tender offer
commenced on December 31, 2008 and expired on January 26, 2009. As a result of this tender
offer, we accepted for purchase and cancellation 20 million common shares at a price of
$2.50 per share, totalling $50.0 million. These shares represented approximately 26.8% of
the shares outstanding as of January 26, 2009. |
|
|
|
|
On October 27, 2009, we announced that our Board of Directors authorized the repurchase of
up to 2.7 million of our common shares, being 5% of our issued and outstanding common
shares, over a 12-month period commencing November 3, 2009 under a normal course issuer bid.
All purchases are to be effected in the open market through the facilities of the Toronto
Stock Exchange or NASDAQ Stock Market, and in accordance with regulatory requirements. The
actual number of common shares which are purchased and the timing of such purchases are
determined by management, subject to compliance with applicable law. All common shares
repurchased will be cancelled. Cumulative purchases under this program during 2009 were
866,790 shares at an average price of $4.59, for a total cost of $4.0 million. |
86
|
(c) |
|
Stock Options |
|
|
|
|
We currently maintain one equity compensation plan, the QLT 2000 Incentive Stock Option Plan
(QLT Plan), which provides for the issuance of common shares to directors, officers,
employees and consultants of QLT and its affiliates. The QLT Plan was amended and restated
with shareholder approval effective May 5, 2009. The principal terms of the QLT Plan are
detailed below. |
|
|
|
|
In the year ended December 31, 2009, there were also options outstanding under the Atrix
2000 Stock Incentive Plan (Atrix Plan) that had been granted to employees of our U.S.
subsidiary, QLT USA, to purchase common shares of QLT Inc. On October 1, 2009, we sold all
of the shares of QLT USA to Tolmar, and all outstanding stock options issued under the Atrix
Plan were subsequently exercised or terminated. As of January 18, 2010, the Atrix Plan and
all previously existing equity compensation plans of QLT are expired and no options
previously granted under these plans remain outstanding. No financial
assistance is provided by us to the participants under any equity compensation plan to
facilitate the exercise of options. |
|
|
|
|
Below is a summary of the principal terms of the QLT Plan: |
|
|
|
|
QLT 2000 Incentive Stock Option Plan (Amended and Restated on May 5, 2009) |
|
|
|
|
Share Reserve. We have reserved an aggregate of 7.8 million common shares for issuance
under the QLT Plan. Common shares with respect to options that are not exercised in full
will be available for grant under subsequent options under the plan. In addition, the
number of common shares reserved for issuance to any one person shall not, in the aggregate,
exceed five percent of the issued and outstanding common shares (on a non-diluted basis).
The Compensation Committee will not grant options to a director who is not an employee or
executive of QLT where such grant will result in such director being awarded options with an
aggregate grant value in excess of CAD $100,000 in any one year. At December 31, 2009,
options to purchase an aggregate total of 5.8 million common shares were outstanding under
the QLT Plan and exercisable in the future at prices ranging between CAD $2.44 and CAD
$20.75 per common share. |
|
|
|
|
Administration. The Compensation Committee administers the QLT Plan. |
|
|
|
|
Eligibility. The directors, officers, employees and consultants of QLT or our affiliated
companies, who are or will be, in the opinion of the Compensation Committee, important for
our growth and success and whose participation in the QLT Plan will, in the opinion of the
Compensation Committee, accomplish the purposes of the QLT Plan, are eligible to participate
in the QLT Plan. |
|
|
|
|
Grant and Exercise of Options. Subject to the terms of the QLT Plan, the Compensation
Committee may grant to any eligible person one or more options as it deems appropriate. The
Compensation Committee may also impose such limitations or conditions on the exercise or
vesting of any option as it deems appropriate. |
|
|
|
|
An option will expire automatically on the earlier of (i) the date on which such option is
exercised in respect of all of the common shares that may be purchased under the QLT Plan,
and (ii) the date fixed by the Compensation Committee as the expiry date of such option,
which date will not be more than five years from the date of grant. Options that would
otherwise expire during black out periods established by QLT will not expire until the
tenth business day after the earlier of the end of such black out period or, provided the
black out period has ended, the expiry date. |
|
|
|
|
Early termination of stock options in the event of termination of service, death or
disability are subject to the specific terms of each applicable option agreement. |
|
|
|
|
Exercise Price. The exercise price of options granted will be determined by the
Compensation Committee, but will in no event be less than the fair market value of our
common shares immediately preceding the grant. As such, the exercise price for options
granted is the closing price on the Toronto Stock Exchange immediately preceding the grant. |
|
|
|
|
Vesting. Vesting of options occurs monthly over 36 months, subject to such altered vesting
schedules as the Compensation Committee or our Board may determine. For senior managers,
executive officers and directors and excluding some situations of retirement and service
periods over 20 years, 50% of any unvested options vest on the termination of employment
without cause, and 100% of unvested options vest on the occurrence of a change of control. |
87
|
|
|
Transferability. No option may be transferred or assigned except by will or by operation of
the laws of devolution or distribution and descent or pursuant to a qualified domestic
relations order, as defined by the U.S. Internal Revenue Code of 1986 and may be exercised
only by an optionee during his or her lifetime. |
|
|
|
|
Amendments or Termination. The QLT Plan will terminate on March 1, 2019 or such earlier date
as the Compensation Committee determines. The Compensation Committee has the right at any
time to suspend or terminate the QLT Plan. The QLT Plan explicitly specifies: (i) the type
of amendments that can be made to the QLT Plan by the Compensation Committee without the
approval of the shareholders, and (ii) the type of amendments that the Compensation
Committee may not make to the QLT Plan or any specific option grant without shareholder or
applicable optionee, as the case may be, approval. |
Stock option activity with respect to our QLT Plan is presented below. (Our 1998 Incentive Stock
Option Plan is included, however no securities remain available for issuance or outstanding
relating to this plan):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Weighted Average |
|
|
Remaining Contractual |
|
(In Canadian dollars) |
|
Number of Options |
|
|
Exercise Price |
|
|
Term (Years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
4,066,022 |
|
|
$ |
13.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,398,096 |
|
|
|
8.38 |
|
|
|
|
|
Exercised |
|
|
(30,632 |
) |
|
|
8.37 |
|
|
|
|
|
Forfeited and expired |
|
|
(1,080,114 |
) |
|
|
16.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
4,353,372 |
|
|
$ |
11.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,304,250 |
|
|
|
3.73 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired |
|
|
(1,571,135 |
) |
|
|
11.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
5,086,487 |
|
|
$ |
7.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,338,500 |
|
|
|
2.85 |
|
|
|
|
|
Exercised |
|
|
(16,197 |
) |
|
|
3.35 |
|
|
|
|
|
Forfeited and expired |
|
|
(581,978 |
) |
|
|
17.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
5,826,812 |
|
|
|
5.84 |
|
|
|
2.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
3,639,411 |
|
|
|
7.18 |
|
|
|
2.21 |
|
88
Stock option activity with respect to all other option plans of the Company are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Weighted Average |
|
|
Remaining Contractual |
|
(In U.S. dollars) |
|
Number of Options |
|
|
Exercise Price |
|
|
Term (Years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
3,000,156 |
|
|
$ |
12.31 |
|
|
|
|
|
|
Granted |
|
|
211,235 |
|
|
|
7.07 |
|
|
|
|
|
Exercised |
|
|
(150,716 |
) |
|
|
6.89 |
|
|
|
|
|
Forfeited and expired |
|
|
(1,768,292 |
) |
|
|
12.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
1,292,383 |
|
|
$ |
11.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
97,250 |
|
|
|
3.78 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired |
|
|
(1,134,426 |
) |
|
|
11.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
255,207 |
|
|
$ |
9.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(19,554 |
) |
|
|
3.78 |
|
|
|
|
|
Forfeited and expired |
|
|
(157,182 |
) |
|
|
10.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
78,471 |
|
|
$ |
8.13 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009 |
|
|
78,471 |
|
|
|
8.13 |
|
|
|
0.05 |
|
As of December 31, 2009, the number of options issued and outstanding under all plans was 11% of
the issued and outstanding common shares.
We used the Black-Scholes option pricing model to estimate the value of the options at each grant
date, using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Annualized volatility |
|
|
53.8 |
% |
|
|
42.1 |
% |
|
|
37.0 |
% |
Risk-free interest rate |
|
|
1.8 |
% |
|
|
2.9 |
% |
|
|
4.4 |
% |
Expected life (years) |
|
|
3.6 |
|
|
|
3.9 |
|
|
|
3.3 |
|
Dividends |
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
The Black-Scholes option pricing model was developed for use in estimating the value of traded
options that have no vesting restrictions and are fully transferable. In addition, option pricing
models require the input of highly subjective assumptions including the expected stock price
volatility. We project expected volatility and expected life of our stock options based upon
historical and other economic data trended into future years. The risk-free interest rate
assumption is based upon observed interest rates appropriate for the terms of our stock options.
The weighted average grant date fair value of stock options granted during the twelve months ended
December 31, 2009 was CAD $1.18, whereas the grant date fair value of stock options granted in the
twelve months ended December 31, 2008 was CAD $1.34 and U.S. $1.35. The grant date fair value of
stock options granted in the twelve months ended December 31, 2007 was CAD $2.65 and U.S. $2.24.
The total intrinsic value of stock options exercised during the year ended December 31, 2009 was
negligible. There were no exercises in 2008. The total intrinsic value of stock options exercised
in 2007 was $0.3 million. The aggregate intrinsic value of options outstanding is CAD $6.2 million,
whereas the aggregate intrinsic value of options exercisable is CAD $2.2 million.
At December 31, 2009, total unrecognized compensation cost related to non-vested stock options
granted prior to that date was $2.7 million, which is expected to be recognized over 36 months with
a weighted-average period of 1.8 years. We received cash from the exercise of stock options for
the years ended December 31, 2009, 2008 and 2007 of $0.1 million, nil and $1.3 million,
respectively. Upon option exercise, we issue new shares of stock. The total share-based
compensation cost of stock options capitalized as part of inventory for the year ended December 31,
2009 was $0.1 million. For each of the years ended December 31, 2008 and 2007 the total share-based
compensation cost of stock options capitalized as part of inventory was $0.2 million.
89
The impact on our results of operations of recording stock-based compensation for the years ended
December 31, 2009, 2008, and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars, except share information) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cost of sales |
|
$ |
31 |
|
|
$ |
17 |
|
|
$ |
31 |
|
Research and development |
|
|
939 |
|
|
|
991 |
|
|
|
1,916 |
|
Selling, general and administrative |
|
|
1,208 |
|
|
|
1,564 |
|
|
|
1,129 |
|
Restructuring |
|
|
|
|
|
|
540 |
|
|
|
40 |
|
Discontinued operations |
|
|
(17 |
) |
|
|
279 |
|
|
|
386 |
|
|
|
|
|
|
|
|
|
|
|
Share based compensation expense before income taxes |
|
|
2,161 |
|
|
|
3,391 |
|
|
|
3,502 |
|
Related income tax benefits |
|
|
(48 |
) |
|
|
(88 |
) |
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
Share based compensation, net of income taxes |
|
$ |
2,113 |
|
|
$ |
3,303 |
|
|
$ |
3,350 |
|
|
|
|
|
|
|
|
|
|
|
14. NET PRODUCT REVENUE
Net product revenue was determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Visudyne sales by Novartis |
|
$ |
105,657 |
|
|
$ |
141,865 |
|
|
$ |
214,857 |
|
Less: Marketing and distribution costs |
|
|
(34,346 |
) |
|
|
(62,213 |
) |
|
|
(103,903 |
) |
Less: Inventory costs |
|
|
(6,031 |
) |
|
|
(11,153 |
) |
|
|
(17,508 |
) |
Less: Royalties to third parties |
|
|
(2,276 |
) |
|
|
(3,040 |
) |
|
|
(4,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,004 |
|
|
$ |
65,459 |
|
|
$ |
88,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QLTs 50% share of Novartis net proceeds
from Visudyne sales |
|
$ |
31,502 |
|
|
$ |
32,730 |
|
|
$ |
44,450 |
|
Add: Advance on inventory costs from
Novartis |
|
|
5,608 |
|
|
|
7,142 |
|
|
|
11,332 |
|
Add: Royalties reimbursed to QLT |
|
|
2,272 |
|
|
|
3,090 |
|
|
|
4,516 |
|
Add: Other costs reimbursed to QLT |
|
|
2,724 |
|
|
|
5,350 |
|
|
|
7,448 |
|
|
|
|
|
|
|
|
|
|
|
Revenue from Visudyne sales |
|
$ |
42,106 |
|
|
$ |
48,312 |
|
|
$ |
67,746 |
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, approximately 29% (2008 26%, 2007 18%) of total Visudyne
sales were in the United States, 28% (2008 32%, 2007 49%) in Europe and 43% (2008 42%, 2007 -
34%) in other markets worldwide.
15. RESTRUCTURING CHARGE
In January 2008, we restructured our operations in order to concentrate our resources on our
Visudyne product and certain clinical development programs. We provided most of the approximately
115 affected employees with severance and support to assist with outplacement and recorded $9.5
million of restructuring charges during the year ended December 31, 2008. We have completed all
activities associated with this restructuring.
90
The details of our restructuring accrual and activity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
|
|
|
|
Contract |
|
|
|
|
|
|
Termination |
|
|
Asset |
|
|
Termination |
|
|
|
|
(In thousands of U. S. dollars) |
|
costs(1) |
|
|
Write-downs |
|
|
costs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007(2) |
|
$ |
119 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
119 |
|
Restructuring charge |
|
|
7,639 |
|
|
|
1,539 |
|
|
|
339 |
|
|
|
9,517 |
|
Foreign exchange |
|
|
(132 |
) |
|
|
|
|
|
|
|
|
|
|
(132 |
) |
Cash payments |
|
|
(6,772 |
) |
|
|
|
|
|
|
(339 |
) |
|
|
(7,111 |
) |
Non-cash portion |
|
|
(540 |
) |
|
|
(1,539 |
) |
|
|
|
|
|
|
(2,079 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
314 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
314 |
|
Restructuring adjustment |
|
|
(263 |
) |
|
|
|
|
|
|
|
|
|
|
(263 |
) |
Foreign exchange |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Cash payments |
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
Non-cash portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Costs include severance, termination benefits, and outplacement support. Non-cash portion of
employee termination costs relates to stock-based compensation. |
|
(2) |
|
Opening balance represents remaining balance from previous restructurings. |
16. INCOME TAXES
Recovery of (provision for) income taxes
Income (loss) before income taxes and discontinued operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Canada |
|
$ |
(15,624 |
) |
|
$ |
9,601 |
|
|
$ |
(122,644 |
) |
United States and other |
|
|
(25,913 |
) |
|
|
(17,045 |
) |
|
|
(43,297 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
discontinued operations |
|
$ |
(41,537 |
) |
|
$ |
(7,444 |
) |
|
$ |
(165,941 |
) |
|
|
|
|
|
|
|
|
|
|
The components of the recovery of (provision for) income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Canada |
|
$ |
5,156 |
|
|
$ |
(2,058 |
) |
|
$ |
40,518 |
|
United States and other |
|
|
161 |
|
|
|
255 |
|
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
Recovery of (provision for) income taxes |
|
$ |
5,317 |
|
|
$ |
(1,803 |
) |
|
$ |
40,404 |
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current income taxes |
|
$ |
(10 |
) |
|
$ |
(2,187 |
) |
|
$ |
41,275 |
|
Deferred income taxes |
|
|
5,327 |
|
|
|
384 |
|
|
|
(871 |
) |
|
|
|
|
|
|
|
|
|
|
Recovery of (provision for) income taxes |
|
$ |
5,317 |
|
|
$ |
(1,803 |
) |
|
$ |
40,404 |
|
|
|
|
|
|
|
|
|
|
|
Differences between our statutory income tax rates and our effective income tax rates applied to
the pre-tax income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Loss before income taxes
and discontinued
operations |
|
$ |
(41,537 |
) |
|
$ |
(7,444 |
) |
|
$ |
(165,941 |
) |
Canadian statutory tax
rates |
|
|
30.00 |
% |
|
|
31.00 |
% |
|
|
34.12 |
% |
|
|
|
|
|
|
|
|
|
|
Expected income tax
recovery |
|
$ |
12,461 |
|
|
$ |
2,308 |
|
|
$ |
56,619 |
|
Purchased in-process
research and development |
|
|
(452 |
) |
|
|
|
|
|
|
(17,074 |
) |
Net increase in valuation
allowance |
|
|
(11,179 |
) |
|
|
(6,667 |
) |
|
|
(633 |
) |
Non-taxable portion of
capital gains |
|
|
849 |
|
|
|
1,694 |
|
|
|
|
|
Tax recovery (cost) of
undistributed earnings of
affiliates |
|
|
1,613 |
|
|
|
(1,613 |
) |
|
|
|
|
Foreign tax rate
differences |
|
|
2,537 |
|
|
|
1,516 |
|
|
|
2,528 |
|
Investment tax credits |
|
|
1,626 |
|
|
|
963 |
|
|
|
2,532 |
|
Prior year tax rate
differences in loss
carryback years |
|
|
(92 |
) |
|
|
|
|
|
|
(2,328 |
) |
Stock options |
|
|
(547 |
) |
|
|
(876 |
) |
|
|
(1,129 |
) |
Future tax rate reductions |
|
|
(1,385 |
) |
|
|
|
|
|
|
(519 |
) |
Other |
|
|
(114 |
) |
|
|
872 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
Recovery of (provision
for) income taxes |
|
$ |
5,317 |
|
|
$ |
(1,803 |
) |
|
$ |
40,404 |
|
|
|
|
|
|
|
|
|
|
|
92
Deferred tax assets and liabilities
The tax effects of temporary differences that give rise to significant components of the deferred
income tax assets and deferred income tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
20,200 |
|
|
$ |
9,114 |
|
Contingent consideration |
|
|
5,386 |
|
|
|
|
|
Research & development tax credit carryforwards |
|
|
3,504 |
|
|
|
3,308 |
|
Capital loss carryforwards |
|
|
40,004 |
|
|
|
|
|
Depreciable and amortizable assets |
|
|
4,182 |
|
|
|
3,365 |
|
Provision for excess and non-completion of inventory |
|
|
3,436 |
|
|
|
1,129 |
|
Other temporary differences |
|
|
1,084 |
|
|
|
559 |
|
|
|
|
|
|
|
|
Total gross deferred income tax assets |
|
$ |
77,796 |
|
|
$ |
17,475 |
|
Less: valuation allowance |
|
|
(58,669 |
) |
|
|
(9,843 |
) |
|
|
|
|
|
|
|
Total deferred income tax assets |
|
$ |
19,127 |
|
|
$ |
7,632 |
|
Less: current portion |
|
|
(5,608 |
) |
|
|
(403 |
) |
|
|
|
|
|
|
|
Net long-term portion of deferred income tax assets |
|
$ |
13,519 |
|
|
$ |
7,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Tax cost of undistributed earnings |
|
|
|
|
|
$ |
(1,619 |
) |
Capital gains reserve |
|
|
(199 |
) |
|
|
(471 |
) |
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
$ |
(199 |
) |
|
$ |
(2,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets |
|
$ |
18,928 |
|
|
$ |
5,542 |
|
|
|
|
|
|
|
|
During 2009, a capital loss was realized on the disposition of our shares of our subsidiary, QLT
USA. As a result of the utilization of capital loss carryforwards being restricted and limited to
offsetting capital gains and since insufficient evidence exists to support our future realization
of enough capital gains to utilize all such capital losses, a valuation allowance has been applied
accordingly. This was the primary reason for the significant valuation allowance increase in 2009.
At December 31, 2009, a valuation allowance continues to be applied to certain of our loss
carryforwards and research and development credit carryforwards in recognition of the uncertainty
that such tax benefits will be realized. The valuation allowance is reviewed periodically and if
the assessment of the more likely than not criterion changes, the valuation allowance is adjusted
accordingly. There may be limitations on the utilization of our accumulated net operating losses
and federal and state tax credit carryforwards as a result of changes in control that have
occurred.
At December 31, 2009, we had approximately $51.9 million of total operating loss carryforwards with
approximately $3.1 million relating to our Canadian operations and $48.8 million relating to our
U.S. subsidiaries. The loss carryforwards expire at various dates through 2029. We also had
approximately $3.5 million of research and development credits available for carryforward of which
approximately $0.3 million were generated by our U.S. subsidiaries. The research and development
credit carryforwards expire at various dates through 2029. We also had approximately $300.9
million of capital loss carryforwards which carryforward indefinitely. The deferred tax benefit of
these loss carryforwards and research and development credits is ultimately subject to final
determination by taxation authorities.
93
The following table summarizes the activity related to our unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance as at January 1 |
|
$ |
766 |
|
|
$ |
756 |
|
|
$ |
715 |
|
Increases related to current year tax positions |
|
|
365 |
|
|
|
110 |
|
|
|
41 |
|
Changes in tax positions of a prior period |
|
|
358 |
|
|
|
(100 |
) |
|
|
|
|
Settlements |
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of Statute of Limitations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31 |
|
$ |
1,489 |
|
|
$ |
766 |
|
|
$ |
756 |
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized tax benefits at December 31, 2009 that, if recognized, would
affect the effective tax rate is $1.5 million.
We recognize potential accrued interest and penalties related to unrecognized tax benefits within
our income tax provision. Only an inconsequential amount of interest and penalties has been accrued
and is included as a component of the uncertain tax position liabilities.
We do not currently expect any significant increases or decreases to our unrecognized tax benefits
within 12 months of the reporting date.
QLT Inc. and its subsidiaries file income tax returns and pay income taxes in jurisdictions where
we believe we are subject to tax. In jurisdictions in which QLT Inc. and its subsidiaries do not
believe we are subject to tax and therefore do not file income tax returns, we can provide no
certainty that tax authorities in those jurisdictions will not subject one or more tax years (since
inception of QLT Inc. or its subsidiaries) to examination. Further, while the statute of
limitations in each jurisdiction where an income tax return has been filed generally limits the
examination period, as a result of loss carryforwards, the limitation period for examination
generally does not expire until several years after the loss carryforwards are utilized. Other than
routine audits by tax authorities for tax credits and tax refunds that we claim, we are not aware
of any material income tax examination currently in progress by any taxing jurisdiction. Our major
tax jurisdictions are Canada and the U.S. With few exceptions, QLT Inc. and its subsidiaries should
not be subject to Canadian income tax examinations in respect of taxation years before 2005 and
U.S. income tax examinations in respect of taxation years before 2006.
17. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
As a result of our comprehensive business and portfolio review, we initiated a strategic
restructuring of our operations in January 2008. On October 1, 2009, the Eligard product line was
divested as part of the sale of all of the shares of QLT USA to Tolmar for up to an aggregate
$230.0 million. Pursuant to the stock purchase agreement, we received $20.0 million on closing and
will receive $10.0 million (note receivable) on or before October 1, 2010 and up to an additional
$200.0 million payable on a quarterly basis in amounts equal to 80% of the royalties paid under the
license agreements with each of Sanofi and MediGene for the commercial marketing of Eligard in the
U.S., Canada, and Europe (beginning with the royalties payable for Eligard sales that occurred in
the quarter ended September 30, 2009). We are entitled to these payments until the earlier of our
receipt of the additional $200.0 million or October 1, 2024. We expect to receive the full $200.0
million on a quarterly basis, over the next five to ten years. The contingent consideration
payments are not generated from a migration or continuation of activities and therefore are not
direct cash flows of the divested business. We do not expect any continuing involvement with this
business following its sale. In addition, under the terms of the stock purchase agreement, Tolmar
paid QLT an amount equal to the cash that QLT USA had on-hand at closing of $118.3 million.
We recognized a pre-tax gain of $107.4 million related to this transaction. The assets sold include
$31.7 million of income tax assets, $14.9 million of accounts receivable, $10.6 million of
inventory, $1.3 million of fixed and other assets, and $23.1 million of goodwill. Liabilities of
$7.3 million were assumed by Tolmar. See Note 19 Financial Instruments and Concentration of
Credit Risk for further information on fair value of contingent consideration.
94
The following assets and liabilities were segregated and included in Assets held for sale and
Liabilities held for sale, as appropriate, in the Consolidated Balance Sheet as at December
31, 2009 and December 31, 2008, and relate to QLT USA:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
Assets held for sale |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
|
|
|
$ |
19,944 |
|
Income taxes receivable |
|
|
|
|
|
|
9,098 |
|
Inventories |
|
|
|
|
|
|
8,469 |
|
Deferred income tax assets |
|
|
|
|
|
|
34,509 |
|
Property, plant and equipment |
|
|
|
|
|
|
71 |
|
Other |
|
|
|
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
72,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
4,701 |
|
Deferred revenue |
|
|
|
|
|
|
2,938 |
|
Uncertain tax position liabilities |
|
|
|
|
|
|
1,267 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
8,906 |
|
|
|
|
|
|
|
|
Assets related to Aczone were sold by QLT USA in July 2008 for cash consideration of $150.0
million, pursuant to the terms of a purchase agreement executed on June 6, 2008. We recognized a
pre-tax gain of $118.2 million related to this transaction. The assets sold included worldwide
rights to Aczone, related inventory of $1.4 million and $27.8 million of goodwill allocated in
accordance with SFAS 142, which was later superceded by the FASB codification and included in ASC
topic 350. Aczone had a nil book value as it was recorded as in-process R&D upon the acquisition of
Atrix in 2004.
On August 25, 2008, QLT USA entered into an exclusive license agreement with Reckitt for its
Atrigel sustained-release drug delivery technology, except for certain rights being retained by us
and our prior licensees, including rights retained for use with the Eligard products. Under the
terms of the license agreement and related asset purchase agreement, QLT USA received an upfront
cash payment of $25.0 million and QLT USA may receive potential milestone payments of up to $5.0
million based on the successful development of two Atrigel-formulated products. As part of the
transaction, Reckitt acquired 18 employees from QLT USA and assumed the lease for most of its
corporate facility located in Fort Collins, Colorado. We recognized a pre-tax gain of $16.7 million
related to this transaction. The assets sold include equipment of $2.5 million, $4.6 million of
goodwill allocated in accordance with SFAS 142, and a license for certain Atrigel rights with a nil
book value.
In accordance with the accounting standard for discontinued operations, the results of operations
related to QLT USA have been excluded from continuing operations and reported as discontinued
operations for the current and prior periods.
95
Operating results of QLT USA included in discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
|
|
|
|
|
ended |
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
September 30 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue and other |
|
$ |
28,625 |
|
|
$ |
42,186 |
|
|
$ |
29,797 |
|
Royalty revenue |
|
|
32,148 |
|
|
|
33,643 |
|
|
|
30,362 |
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
|
60,773 |
|
|
|
75,829 |
|
|
|
60,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating pre-tax income |
|
|
29,174 |
|
|
|
21,704 |
|
|
|
15,212 |
|
Other gains |
|
|
1,828 |
|
|
|
|
|
|
|
4,000 |
|
Gain on sale of discontinued operations |
|
|
107,363 |
|
|
|
134,874 |
|
|
|
|
|
Pre-tax income |
|
|
138,365 |
|
|
|
156,578 |
|
|
|
19,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes(1) |
|
|
(2,711 |
) |
|
|
(67,160 |
) |
|
|
(3,672 |
) |
Recovery of income taxes(2) |
|
|
|
|
|
|
54,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations |
|
$ |
135,654 |
|
|
$ |
144,138 |
|
|
$ |
15,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In 2008, the income tax provision relating to the gain on sale of Aczone discontinued
operations (before application of loss carryforwards) was $55.2 million. Income tax provision
relating to the gain on sale of Atrigel discontinued operations (before application of loss
carryforwards) was $8.1 million. |
|
(2) |
|
During year ended December 31, 2008, we released our valuation allowance on substantially all
of QLT USAs tax assets. (See Note 16 Income Taxes.) |
18. CONTINGENT CONSIDERATION
On October 1, 2009, all of the shares of QLT USA were sold to Tolmar for up to an aggregate
$230.0 million, plus cash on hand of $118.3 million.
The aggregate $230.0 million includes contingent consideration of $200.0 million which
represents amounts owed on a quarterly basis
in amounts equal to 80% of the royalties paid under the license
agreements with Sanofi and MediGene
for the commercial marketing of Eligard until the earlier of QLT
receiving the additional $200.0
million or October 1, 2024. Contingent consideration arising
on the sale of QLT USA is measured at a
fair value of $151.1 million as at December 31, 2009. See Note 19 Financial Instruments and Concentration
of Credit Risk and Note 17
Discontinued Operations and Assets held for Sale. As at December 31,
2009, we have received $8.4
million of the $200.0 million.
19. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
We have various financial instruments that must be measured under the fair value standard including
cash and cash equivalents, restricted cash, note receivable, mortgage receivable and forward
currency contracts. The note and mortgage payable to us are recorded as receivables and are carried
at amortized cost. Our note receivable related to the sale of QLT USA was recorded at fair value
using a discount rate of 11%. Based on market information, the book value of our note and mortgage
receivables approximates fair value. Our financial assets and liabilities are measured using inputs
from the three levels of the fair value hierarchy.
96
The following table provides information about our assets and liabilities that are measured at fair
value on a recurring basis as of December 31, 2009 and indicates the fair value hierarchy of the
valuation techniques we utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 |
|
|
|
Carrying Value |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
188,114 |
|
|
$ |
188,114 |
|
|
$ |
|
|
|
$ |
|
|
Contingent consideration(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
188,114 |
|
|
$ |
188,114 |
|
|
$ |
|
|
|
$ |
151,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
To estimate the fair value of contingent consideration at December 31, 2009, we used a
discounted cash flow model based on estimated timing and amount of future cash flows,
discounted using a cost of capital of 9.5% determined by management after considering
all available market and industry information. Future cash flows
were estimated by utilizing external market research to estimate market size, to which we
applied market share and pricing assumptions based on historical sales data and expected
future competition. If the discount rate were to increase by 1%, the contingent
consideration would decrease by $3.4 million, from $151.1 million to $147.7 million. If
estimated future revenues were to decrease by 10%, the contingent consideration would
decrease by $3.9 million, from $151.1 million to $147.2 million. |
The following table represents a reconciliation of our asset (contingent consideration)
measured and recorded at fair value on a recurring basis, using significant unobservable inputs
(Level 3):
|
|
|
|
|
(In thousands of U.S. dollars) |
|
Level 3 |
|
Balance at December 31, 2008 |
|
$ |
|
|
Transfers to Level 3 |
|
|
156,240 |
|
Net settlements |
|
|
(8,441 |
) |
Fair value change in contingent consideration |
|
|
3,279 |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
151,078 |
|
|
|
|
|
We purchase goods and services primarily in Canadian dollars and U.S. dollars, and earn most of our
revenues in U.S. dollars. Previously, we entered into foreign exchange contracts to manage exposure
to currency rate fluctuations related to our expected future cash flows (in U.S. dollars) other
than our intercompany debt. Following the sale of QLT USA, the primary objective of our balance
sheet risk management program is to protect the U.S. dollar value of our net monetary assets.
Since the Canadian dollar is the functional currency of QLT Inc., our U.S. dollar net monetary
assets may generate significant foreign exchange gains/losses. The net gain in respect of such
foreign currency contracts for the year ended December 31, 2009 was approximately $3.0 million,
which was included in our results of operations. At December 31, 2009, we had no outstanding
forward foreign currency contracts. Foreign exchange risk is also managed by satisfying foreign
denominated expenditures with cash flows or assets denominated in the same currency.
Other financial instruments that potentially subject us to concentration of credit risk include our
cash, cash equivalents, restricted cash, accounts receivable, note receivable, contingent
consideration, and mortgage receivable. In order to limit our credit exposure, our policy in
regards to cash and cash equivalents is to deposit our cash with high quality financial
institutions or invest in investment grade money market instruments. Furthermore, we limit our
investment in any particular issuer to a maximum of 5% of our total portfolio unless it is a
government issuer, money market fund, or term deposit.
Our contingent consideration, as at December 31, 2009, represents amounts owed on a quarterly basis
in amounts equal to 80% of the royalties paid under the license agreements with Sanofi and MediGene
for the commercial marketing of Eligard in the U.S., Canada and Europe until the earlier of QLT
receiving the additional $200.0 million or October 1, 2024.
Our accounts receivable, as at December 31, 2009 and 2008, comprised primarily amounts owing from
Novartis, see Note 4 Accounts Receivable. Our accounts receivable included in assets held for
sale as at December 31, 2008, comprised approximately 58% owing from MediGene and 32% owing from
sanofi-aventis US LLC.
97
Our note receivable, as at December 31, 2009, represents $10 million owing from Tolmar on or before
October 1, 2010, related to the stock purchase agreement for the sale of QLT USA.
Our mortgage receivable, as at December 31, 2009, comprises a two-year, 6.5% interest-only, second
mortgage in the amount of CAD $12.0 million related the sale of our land building to Discovery
Parks Holdings Ltd. on August 29, 2008.
20. COMMITMENTS AND GUARANTEES
In conjunction with the sale of our land and building on August 29, 2008, we entered into a
five-year operating lease with Discovery Parks for office and laboratory space. We have two options
to renew this lease for an additional five years each, at fair market value at the time of each
renewal.
Estimated operating lease payments for office space and office equipment payable over the next five
years are as follows:
|
|
|
|
|
(In thousands of U.S. dollars) |
|
|
|
|
Year ending December 31, |
|
|
|
|
2010 |
|
$ |
1,679 |
|
2011 |
|
|
1,653 |
|
2012 |
|
|
1,586 |
|
2013 |
|
|
1,563 |
|
2014 and thereafter |
|
|
|
|
|
|
|
|
Total |
|
$ |
6,481 |
|
|
|
|
|
Rent expense amounted to $1.6 million in 2009, $0.5 million in 2008, and a negligible amount in
2007.
In connection with the sale of assets and businesses, we provided indemnities with respect to
certain matters, including product liability, patent infringement, contractual breaches and
misrepresentations, and we provide other indemnities to third parties under the clinical trial,
license, service, manufacturing, supply, distribution and other agreements that we enter into in
the normal course of our business. If the indemnified party were to make a successful claim
pursuant to the terms of the indemnification, we would be required to reimburse the loss. These
indemnifications are generally subject to threshold amounts, specified claims periods and other
restrictions and limitations. As at December 31, 2009, no amount has been accrued related to
indemnities.
98
21. SEGMENT INFORMATION
We operate in one segment, which is the business of developing, manufacturing, and commercializing
therapeutics for human health care. Our chief operating decision makers review our operating
results on a company-wide basis and manage our operations as a single operating segment. Our
segment information does not include the results of businesses classified as discontinued
operations.
Details of our revenues and property, plant and equipment by geographic segments are as follows:
Revenues(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
16,394 |
|
|
$ |
16,612 |
|
|
$ |
15,063 |
|
Europe |
|
|
10,960 |
|
|
|
13,953 |
|
|
|
35,512 |
|
Canada |
|
|
2,526 |
|
|
|
4,529 |
|
|
|
7,105 |
|
Japan |
|
|
8,301 |
|
|
|
8,746 |
|
|
|
6,278 |
|
Other |
|
|
3,925 |
|
|
|
4,472 |
|
|
|
3,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,106 |
|
|
$ |
48,312 |
|
|
$ |
67,746 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
(In thousands of U.S. dollars) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
1,977 |
|
|
$ |
2,798 |
|
U.S. |
|
|
620 |
|
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,597 |
|
|
$ |
3,113 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revenues are attributable to a geographic segment based on the location of the customer.
Novartis contributed all of our total revenues in each of the last three years. |
22. CONTINGENCIES
From time to time we are involved in legal proceedings arising in the ordinary course of business.
There is no litigation currently pending that could have, individually or in the aggregate, a
material adverse effect on our financial position and results of operations or cash flows.
The following is a description of a legal action against us that was settled by the parties in the
last fiscal quarter of 2009.
Settlement of Litigation with Massachusetts General Hospital
In April 2000, Massachusetts Eye and Ear Infirmary (MEEI) filed a civil suit against us in the
United States District Court for the District of Massachusetts, or the District Court, seeking,
among other things, to establish that MEEI was entitled to compensation for certain inventions
relating to the use of Visudyne in the treatment of certain eye diseases including age related
macular degeneration (AMD) and asserting a number of claims against us, including claims for
breach of contract, unjust enrichment, and violation of Massachusetts General Law Chapter 93A, or
c. 93A, a consumer protection law which makes unfair or deceptive acts or practices in the conduct
of any trade or commerce unlawful. In November 2006, a jury returned a verdict in favour of MEEI
on its unjust enrichment and c. 93A claims, and on July 18, 2007, the District Court entered a
judgment on the c. 93A claim, and ordered us to pay MEEI 3.01% of all past, present and future
worldwide Visudyne net sales. The District Court also awarded pre-judgment interest at the
Massachusetts statutory rate of 12% on the amounts as they would have become payable from April 24,
2000 and legal fees in an amount of $14.1 million, to which a reduction of $3.0 million previously
agreed to by MEEI was applied. We appealed the judgment, but on January 12, 2009 the judgment was
affirmed, and on April 23, 2009 an aggregate $127.1 million was paid to MEEI to satisfy the
judgment up to that date.
99
On February 11, 2009, the General Hospital Corporation, doing business as Massachusetts General
Hospital (MGH), filed a complaint in the Superior Court of the Commonwealth of Massachusetts, or
the Superior Court, against QLT Phototherapeutics (Canada), Inc., a prior registered name for QLT.
In its complaint, MGH alleged that it entered into a written agreement with us that required us to
pay MGH the same amount that we pay MEEI on sales of Visudyne. MGH asserted claims for breach of
contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment,
violation of c. 93A, and sought a declaratory judgment, and MGH sought past, present, and future
royalties and other compensation based on the same 3.01% of worldwide Visudyne net sales awarded to
MEEI, money damages and multiple damages in an amount to be proved at trial, pre-judgment interest,
costs and attorneys fees, as well as any other and further relief that the court deemed just and
proper. The MGH License Agreement provided for a 0.5% royalty payable to MGH based on Visudyne
sales in the U.S. and Canada, and was subject to a most-favored-nations provision which would have
required us to adjust the royalty rate upward had we entered into a license agreement with MEEI for
the same rights at a higher rate.
We removed the case from the Superior Court to the District Court on March 11, 2009 and filed a
Motion to Dismiss the case on March 17, 2009. MGH filed a Motion to Remand the case back to state
court, and filed an opposition to our Motion to Dismiss. The District Court held a hearing on both
of these issues on May 21, 2009, denied MGHs motion to remand, and granted our motion to dismiss
all of the claims filed by MGH except the claim made under c. 93A.
On November 24, 2009 the action was settled by the parties pursuant to a settlement agreement and
amendment to license agreement, under which we paid MGH an aggregate $20.0 million, constituting
payment in full for all past and future royalty obligations under the MGH License Agreement and the
license is now fully paid up. The payment was also in satisfaction and settlement of any
obligations we had, may have, or may have had in connection with the subject matter of the lawsuit,
the license agreement (other than terms of the license agreement not affected by the settlement),
certain related patent rights and sales of Visudyne anywhere in the world. Pursuant to the
settlement, the action was dismissed with prejudice on December 1, 2009.
100
|
|
|
Item 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
|
Item 9A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information
required to be disclosed in filings made pursuant to the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified and in accordance
with the Securities and Exchange Commissions rules and forms and is accumulated and communicated
to management, including the Chief Executive Officer and Chief Financial Officer. Our principal
executive and financial officers have evaluated our disclosure controls and procedures as of the
end of the period covered by this report and concluded that our disclosure controls and
procedures were effective in timely alerting them to material information required to be included
in our periodic SEC reports.
It should be noted that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions, regardless of how
remote. However, our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective under circumstances where our disclosure controls
and procedures should reasonably be expected to operate effectively.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in the U.S. Securities Exchange Act of 1934, Rules
13a-15(f). Under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on our evaluation under the framework in Internal Control Integrated Framework, our
management concluded that our internal control over financial reporting was effective as of
December 31, 2009.
Deloitte & Touche LLP, the independent registered chartered accountants that audited our December
31, 2009 consolidated annual financial statements, has issued an attestation report on our internal
control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls
during our last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
101
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders of QLT Inc.
We have audited the internal control over financial reporting of QLT Inc. and subsidiaries (the
Company) as of December 31, 2009, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Companys management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2009 of the Company and our report dated March
10, 2010 expressed an unqualified opinion on those consolidated financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Independent Registered Chartered Accountants
Vancouver, Canada
March 10, 2010
102
Item 9B. OTHER INFORMATION
None
PART III
The Information required by Items 10 through 14 of Part III of this Report are incorporated by
reference from the proxy statement for use in connection with the Companys Annual Meeting of
Shareholders to be held on May 20, 2010.
|
|
|
Item 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required for this Item is incorporated by reference from the information set forth
under the headings Director Nomination Process, Audited Consolidated Financial Statements and
Additional Information, Audit and Risk Committee, Section 16(a) Beneficial Ownership Reporting
Compliance, Corporate Code of Ethics and Code of Exemplary Conduct, Election of Directors and
Information Concerning Board Committees in our definitive proxy statement for our annual meeting
of shareholders to be held on May 20, 2010.
We have a code of ethics and code of exemplary conduct for senior financial officers that
applies to our principal executive officer, all senior financial managers, including the principal
financial and accounting officer, our treasurer, controller, internal legal counsel, corporate
secretary, and all other company officers. We also have a code of business conduct and ethics that
applies to all of our employees. Information regarding our codes is available on our website at
www.qltinc.com, and is incorporated by reference to the information set forth under the heading
Corporate Code of Ethics and Code of Exemplary Conduct in our definitive proxy statement for our
annual meeting of shareholders to be held on May 20, 2010. Information on our website is not
incorporated by reference and does not form a part of this Report. We intend to satisfy the
disclosure requirements under Item 10 of Form 8-K regarding any amendment to, or a waiver from, a
provision of our codes by posting such amendment or waiver on our website. Copies of our annual
reports on Form 10-K will be furnished without charge to any person who submits a written request
directed to the attention of our Secretary, at our offices located at 101-887 Great Northern Way,
Vancouver, B.C, Canada V5T 4T5.
OUR EXECUTIVE OFFICERS
The following table sets forth information about our executive officers as of February 26, 2010.
The executive officers listed below serve in their respective capabilities at the discretion of our
Board of Directors.
|
|
|
|
|
Name |
|
Age |
|
Position |
Robert L. Butchofsky |
|
48 |
|
President and Chief Executive Officer |
Cameron R. Nelson |
|
44 |
|
Vice President, Finance and Chief Financial Officer |
Linda M. Lupini |
|
50 |
|
Senior Vice President, Human Resources and Organizational Development |
Alexander R. Lussow |
|
47 |
|
Senior Vice President, Commercial Operations and Business Development |
|
|
|
Item 11. |
|
EXECUTIVE COMPENSATION |
The information required for this Item is incorporated by reference from the information set forth
under the headings Compensation of Non-Employee Directors, Equity-Based Compensation,
Compensation Committee Interlocks and Insider Participation, Report of the Executive
Compensation Committee, Executive Compensation, Summary Compensation Table, Grants of Plan
Based Awards, Outstanding Equity Awards at Fiscal Year End, Option Exercises and Stock Vested,
Potential Payments Upon Termination or Change-in-Control, Option Grants in Last Fiscal Year and
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values in our
definitive proxy statement for our annual meeting of shareholders to be held on May 20, 2010.
103
|
|
|
Item 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Equity Compensation Plan Information
The following table sets out information regarding our common stock that may be issued upon the
exercise of options, warrants and other rights granted to employees, consultants or directors under
all of our existing equity compensation plans, as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available for |
|
|
|
Number of securities |
|
|
|
|
|
|
future issuance under |
|
|
|
to be issued upon |
|
|
Weighted average |
|
|
equity compensation |
|
|
|
exercise of |
|
|
exercise price of |
|
|
plans (excluding |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
securities reflected in |
|
PLAN CATEGORY |
|
warrants and rights |
|
|
warrants and rights |
|
|
column (a)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders
(QLT 2000 Incentive
Stock Option Plan) |
|
|
5,826,812 |
(1) |
|
CAD$ |
5.84 |
|
|
|
1,588,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders
(Atrix 2000 Stock
Incentive Plan) |
|
|
78,471 |
(2) |
|
USD$ |
8.13 |
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,905,283 |
|
|
|
|
|
|
|
1,588,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The QLT 2000 Incentive Stock Option Plan, as amended and restated effective May 5,
2009, provides for the issuance of common stock to employees, consultants, officers and directors
of QLT and its affiliates. |
|
(2) |
|
On October 1, 2009, we sold all of the shares of QLT USA to Tolmar, and all
outstanding stock options issued under the 2000 Atrix Performance Stock Option Plan were
subsequently exercised or terminated. |
|
(3) |
|
The Atrix 2000 Stock Incentive Plan was only available for issuance of stock options
to employees, officers, and directors of QLT USA. Therefore, there are no further shares available
for issuance under this plan. |
Other information required for this Item is incorporated by reference from the proxy statement for
use in connection with the annual meeting of shareholders to be held on May 20, 2010.
104
|
|
|
Item 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required for this Item is incorporated by reference from the information set forth
under the headings Indebtedness of Directors, Executive Officers and Senior Officers, Potential
Payments Upon Termination or Change-In-Control, Interest of Certain Persons in Material
Transactions and Information Concerning Board Committees in our definitive proxy statement for
use in connection with the annual meeting of shareholders to be held on May 20, 2010.
|
|
|
Item 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required for this Item is incorporated by reference from the information set forth
under the heading Appointment of Independent Auditors in our definitive proxy statement for use
in connection with the annual meeting of shareholders to be held on May 20, 2010.
105
PART IV
|
|
|
Item 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Financial Statements
|
(i) |
|
The following financial statement documents are included as part of Item 8 to this
Form 10-K. |
Report of Independent Registered Chartered Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders Equity
Notes to the Consolidated Financial Statements
|
(ii) |
|
Schedules required by Article 12 of Regulation S-X: |
Except for Schedule II Valuation and Qualifying Accounts, all other schedules have been
omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes thereto.
Schedule II Valuation and Qualifying Accounts for the Years ended December 31, 2009,
2008 and 2007.
Provision for non-completion of inventory
(In thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
Charged / |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
charged to |
|
|
(credited) to |
|
|
Write-offs |
|
|
|
|
|
|
beginning of |
|
|
costs and |
|
|
other |
|
|
and provision |
|
|
Balance at |
|
Year |
|
year |
|
|
expenses |
|
|
accounts(1) |
|
|
reduction |
|
|
end of year |
|
2009 |
|
$ |
1,874 |
|
|
$ |
|
|
|
$ |
311 |
|
|
$ |
|
|
|
$ |
2,185 |
|
2008 |
|
|
2,292 |
|
|
|
|
|
|
|
( 417 |
) |
|
|
(1 |
) |
|
|
1,874 |
|
2007 |
|
|
4,016 |
|
|
|
|
|
|
|
648 |
|
|
|
(2,372 |
) |
|
|
2,292 |
|
|
|
|
(1) |
|
Foreign currency translation adjustments. |
Reserve for inventory obsolescence
(In thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
Charged / |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
charged to |
|
|
(credited) to |
|
|
Write-offs |
|
|
|
|
|
|
beginning of |
|
|
costs and |
|
|
other |
|
|
and provision |
|
|
Balance at |
|
Year |
|
year |
|
|
expenses |
|
|
accounts(1) |
|
|
reduction |
|
|
end of year |
|
2009 |
|
$ |
2,471 |
|
|
$ |
8,114 |
|
|
|
975 |
|
|
$ |
|
|
|
$ |
11,560 |
|
2008 |
|
|
3,020 |
|
|
|
|
|
|
|
(549 |
) |
|
|
|
|
|
|
2,471 |
|
2007 |
|
|
|
|
|
|
3,074 |
|
|
|
(54 |
) |
|
|
|
|
|
|
3,020 |
|
|
|
|
(1) |
|
Foreign currency translation adjustments. |
Deferred tax asset valuation allowance
(In thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
charged to |
|
|
Write-offs |
|
|
|
|
|
|
beginning of |
|
|
costs and |
|
|
and provision |
|
|
Balance at |
|
Year |
|
year |
|
|
expenses |
|
|
reduction |
|
|
end of year |
|
2009 |
|
$ |
9,843 |
|
|
$ |
48,826 |
|
|
$ |
|
|
|
$ |
58,669 |
|
2008 |
|
|
3,150 |
|
|
|
7,261 |
|
|
|
(568 |
) |
|
|
9,843 |
|
2007 |
|
|
759 |
|
|
|
3,473 |
|
|
|
(1,082 |
) |
|
|
3,150 |
|
Exhibits
The exhibits filed with this Report are set forth in the Exhibit Index.
106
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: March 10, 2010
|
|
|
|
|
|
QLT INC.
|
|
|
By: |
/s/ Robert L. Butchofsky
|
|
|
|
Robert L. Butchofsky, President and Chief
Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
By: |
/s/ Cameron R. Nelson
|
|
|
|
Cameron R. Nelson, Vice President, Finance and Chief
Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
|
107
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of QLT Inc. do hereby constitute and appoint Robert L.
Butchofsky and Cameron R. Nelson, and each of them, the lawful attorney and agent or attorneys and
agents with power and authority to do any and all acts and things and to execute all instruments
which said attorneys and agents, or either of them, determine may be necessary or advisable or
required to enable QLT Inc. to comply with the Securities Exchange Act of 1934, as amended, and any
rules or regulations or requirements of the Securities and Exchange Commission in connection with
this Form 10-K Annual Report. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names of the undersigned
officers and directors in the capacities indicated below to this Form 10-K or amendments or
supplements thereto, and each of the undersigned hereby ratifies and confirms all that said
attorneys and agents or either of them, shall do or cause to be done by virtue hereof. This Power
of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney on behalf of the
Registrant and in the capacities and on the dates indicated.
|
|
|
|
|
Signatures |
|
Title |
|
Date |
|
|
|
|
|
/s/
Robert L. Butchofsky
Robert L. Butchofsky
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Cameron R. Nelson
Cameron R. Nelson
|
|
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
March 10, 2010 |
|
|
|
|
|
/s/ C. Boyd Clarke
|
|
Chairman of the Board of Directors and Director
|
|
March 10, 2010 |
|
|
|
|
|
|
|
|
|
/s/ Bruce L.A. Carter
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Peter A. Crossgrove
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Kathryn E. Falberg
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Ian J. Massey
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Joseph L. Turner
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Jack L. Wood
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
108
Exhibit Index
The exhibits listed below are filed as part of this Report. References under the caption
Location to exhibits or other filings indicate that the exhibit or other filing has been filed,
that the indexed exhibit and the exhibit or other filing referred to are the same and that the
exhibit or other filing referred to is incorporated by reference. Management contracts and
compensatory plans or arrangements filed as exhibits to this Report are identified by an asterisk.
The Commission file number for our Exchange Act filings referenced below is 0-17082.
|
|
|
|
|
|
|
Exhibit |
|
Description |
|
Location |
|
|
|
|
|
|
|
|
2.1 |
|
|
Asset Purchase Agreement, dated December 20,
2006, by and among Tolmar, Inc., Dillford
Company S.A. and QLT USA, Inc. (1)
|
|
Exhibit 2.1 to the
Companys Annual
Report on Form 10-K
for the year-ended
December 31, 2006. |
|
|
|
|
|
|
|
|
2.2 |
|
|
Agreement and Plan of Merger by and among QLT
Inc, Aspen Acquisition Corp. and Atrix
Laboratories, Inc. dated as of June 14, 2004.
|
|
Annex A to the
Companys Joint Proxy
Statement/Prospectus
on Form S-4 dated
October 14, 2004. |
|
|
|
|
|
|
|
|
2.3 |
|
|
Agreement and Plan of Merger dated October 8,
2007, by and among the Company, 3088923, Inc.,
ForSight Newco II, Inc. and the Stockholders
Representatives named therein.(1)
|
|
Exhibit 2.1 to the
Companys Current
Report on Form 8-K
dated October 8, 2007
and filed with the
Commission on October
11, 2007. |
|
|
|
|
|
|
|
|
2.4 |
|
|
Purchase Agreement, dated as of June 6, 2008, by
and between Allergan Sales, LLC and QLT USA,
Inc.
|
|
Exhibit 2.1 to the
Companys Current
Report on Form 8-K
dated June 6, 2008 and
filed with the
Commission on June 10,
2008. |
|
|
|
|
|
|
|
|
2.5 |
|
|
Stock Purchase Agreement dated as of October 1,
2009 between QLT Inc. and TOLMAR Holding, Inc.
|
|
Exhibit 2.1 to the
Companys Current
Report on Form 8-K
dated October 1, 2009. |
|
|
|
|
|
|
|
|
3.0 |
|
|
Articles
|
|
Exhibit 3.2 to the
Companys Current
Report on Form 8-K
dated May 25, 2005 and
filed with the
Commission on June 1,
2005. |
|
|
|
|
|
|
|
|
4.1 |
|
|
Shareholder Rights Plan Agreement, as amended
and restated, dated as of April 8, 2005, between
QLT Inc. and ComputerShare Trust Company of
Canada.
|
|
Exhibit 41 to the
Companys Current
Report on Form 8-K
dated April 8, 2005
and filed with the
Commission on
April 13, 2005. |
|
|
|
|
|
|
|
|
4.2 |
|
|
Registration Rights Agreement, as amended and
restated, dated as of December 17, 2004 by and
between QLT Inc., Elan International Services,
Ltd., and Elan Pharmaceutical Investments III,
Ltd.
|
|
Exhibit 4.2 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
March 31, 2005. |
|
|
|
|
|
|
|
|
10.1 |
|
|
Agreement, dated April 8, 1982, between Dr.
Julia Levy, Quadra Logic Technologies Inc. and
the University of British Columbia.
|
|
Exhibit to the
Companys Registration
Statement on Form F-1
(File No. 33-31222)
filed with the
Commission on
September 25, 1989. |
|
|
|
|
|
|
|
|
10.2 |
|
|
Agreement, dated January 15, 1988, between Dr.
David Dolphin, Quadra Logic Technologies Inc.
and the University of British Columbia.
|
|
Exhibit to the
Companys Annual
Report on Form 20-F
for the year ended
December 31, 1988. |
|
|
|
|
|
|
|
|
10.3 |
|
|
Royalty Adjustment and Stock Option Agreement
dated August 10, 1989, between Quadra Logic
Technologies Inc. and Dr. David Dolphin.
|
|
Exhibit to the
Companys Amendment
No. 1 to the
Registration Statement
on Form F-1 dated
November 6, 1989. |
|
|
|
|
|
|
|
|
10.4 |
|
|
Royalty Agreement, dated December 15, 1987,
between Quadra Logic Technologies Inc. and Dr.
David Dolphin.
|
|
Exhibit to the
Companys Amendment
No. 1 to the
Registration Statement
on Form F-1 dated
November 6, 1989. |
|
|
|
|
|
|
|
|
10.5 |
|
|
1998 QLT Incentive Stock Option Plan.
|
|
Exhibit 10.68 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998. |
109
|
|
|
|
|
|
|
Exhibit |
|
Description |
|
Location |
|
|
|
|
|
|
|
|
10.6 |
* |
|
2000 QLT Incentive Stock Option Plan (as amended
in 2002); (formerly numbered 10.70).
|
|
Exhibit to the
Companys Registration
Statement on Form S-8
filed with the
Commission on
September 20, 2002. |
|
|
|
|
|
|
|
|
10.7 |
* |
|
Employment Agreement dated December 18, 2001
between QLT Inc. and Paul J. Hastings.
|
|
Exhibit 10.77 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2002. |
|
|
|
|
|
|
|
|
10.8 |
* |
|
Employment Agreement dated May 19, 2000 between
QLT Inc. and Alain Curaudeau.
|
|
Exhibit 10.80 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2002. |
|
|
|
|
|
|
|
|
10.9 |
|
|
PDT Product Development, Manufacturing and
Distribution Agreement, dated July 1, 1994,
between Quadra Logic Technologies Inc. and CIBA
Vision AG, Hettlingen (now Novartis Pharma AG).
|
|
Exhibit to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1995. |
|
|
|
|
|
|
|
|
10.10 |
|
|
BPD-MA Verteporfin Supply Agreement, dated March
12, 1999 between QLT PhotoTherapeutics Inc. and
Parkedale Pharmaceuticals, Inc. (1)
|
|
Exhibit 10.54 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998. |
|
|
|
|
|
|
|
|
10.11 |
|
|
BPD-MA Presome Supply Agreement, dated February
6, 2008, between QLT PhotoTherapeutics Inc. and
Nippon Fine Chemical Co., Ltd. (1)
|
|
Exhibit 10.55 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998. |
|
|
|
|
|
|
|
|
10.12 |
|
|
BPD-MA Supply Agreement, dated December 11,
1998, between QLT PhotoTherapeutics Inc. and
Raylo Chemicals Limited. (1)
|
|
Exhibit 10.56 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998. |
|
|
|
|
|
|
|
|
10.13 |
|
|
License Agreement, dated December 8, 1998,
between QLT PhotoTherapeutics Inc. and The
General Hospital Corporation. (1)
|
|
Exhibit 10.63 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 1998. |
|
|
|
|
|
|
|
|
10.14 |
|
|
Amending Agreement to PDT Product Development,
Manufacturing and Distribution Agreement dated
as of July 23, 2001 between Novartis Ophthalmics
AG and QLT Inc. (1)
|
|
Exhibit 10.74 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 2002. |
|
|
|
|
|
|
|
|
10.15 |
|
|
Amending Agreement to PDT Product Development,
Manufacturing and Distribution Agreement entered
into July 22, 2003 between Novartis Ophthalmics
AG (now a division of Novartis Pharma AG) and
QLT Inc.
|
|
Exhibit 10.77 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2003. |
|
|
|
|
|
|
|
|
10.16 |
|
|
Agreement and Plan of Merger by and among QLT
Inc, Aspen Acquisition Corp. and Atrix
Laboratories, Inc. dated as of June 14, 2004.
|
|
See Exhibit 2.2 above. |
|
|
|
|
|
|
|
|
10.17 |
|
|
License and Royalty Agreement, dated as of
August 8, 2000 between Atrix Laboratories, Inc.
and Pfizer Inc.
|
|
Exhibit 99.3 to Atrix
Laboratories, Inc.s
Current Report on Form
8-K dated August 8,
2000 and filed with
the Commission on
September 7, 2000. |
|
|
|
|
|
|
|
|
10.18 |
|
|
Collaboration, Development and Supply Agreement
dated as of August 28, 2000 between Atrix
Laboratories, Inc. and Sandoz, Inc. (formerly
Geneva Pharmaceuticals, Inc.)
|
|
Exhibit 10.13 to Atrix
Laboratories, Inc.s
Quarterly Report on
Form 10-Q for the
quarter ended
September 30, 2000. |
|
|
|
|
|
|
|
|
10.19 |
|
|
Collaboration, License and Supply Agreement
dated as of December 8, 2000 between Atrix
Laboratories, Inc. and Sanofi-Synthelabo Inc. as
amended through February 15, 2007. (1)
|
|
Exhibit 10.19 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006. |
110
|
|
|
|
|
|
|
Exhibit |
|
Description |
|
Location |
|
|
|
|
|
|
|
|
10.20 |
|
|
Collaboration, License and Supply Agreement,
dated as of April 4, 2001, between Atrix
Laboratories, Inc. and MediGene as amended
through May 17, 2006. (1)
|
|
Exhibit 10.20 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006. |
|
|
|
|
|
|
|
|
10.21 |
* |
|
Separation Letter Agreement with Michael J. Doty.
|
|
Exhibit 10.1 to the
Companys Current
Report on Form 8-K
dated April 15, 2005
and filed with the
Commission on
April 21, 2005. |
|
|
|
|
|
|
|
|
10.22 |
* |
|
QLT Inc. 2005 Cash Incentive Plan.
|
|
Exhibit 10.01 to the
Companys Current
Report on Form 8-K
dated May 10, 2005 and
filed with the
Commission on May 16,
2005. |
|
|
|
|
|
|
|
|
10.23 |
* |
|
Deferred Share Unit Plan For Non-Employee
Directors.
|
|
Exhibit 10.32 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2005. |
|
|
|
|
|
|
|
|
10.24 |
* |
|
Change Of Control Letter Agreement between QLT
Inc. and Cameron Nelson.
|
|
Exhibit 10.34 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2005. |
|
|
|
|
|
|
|
|
10.25 |
* |
|
Letter Agreement dated September 23, 2005
between QLT Inc. and Paul J. Hastings.
|
|
Exhibit 10.1 to the
Companys Current
Report on Form 8-K
dated September 23,
2005 and filed with
the Commission on
September 26, 2005. |
|
|
|
|
|
|
|
|
10.26 |
* |
|
Employment Agreement dated September 26, 2005
between QLT Inc. and Robert L. Butchofsky.
|
|
Exhibit 10.35 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 2005. |
|
|
|
|
|
|
|
|
10.27 |
* |
|
Change of control letter agreement dated
September 26, 2005 for Robert L. Butchofsky.
|
|
Exhibit 10.36 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 2005. |
|
|
|
|
|
|
|
|
10.28 |
* |
|
Employment Agreement dated November 8, 2005
between QLT Inc. and Cameron Nelson.
|
|
Exhibit 10.37 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
September 30, 2005. |
|
|
|
|
|
|
|
|
10.29 |
* |
|
Consultancy Agreement, dated December 7, 2005,
between QLT Inc. and Dr. Mohammad Azab.
|
|
Exhibit 10.40 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2005. |
|
|
|
|
|
|
|
|
10.30 |
* |
|
Employment Agreement dated December 9, 2005
between QLT USA, Inc. and Michael R. Duncan.
|
|
Exhibit 10.41 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2005. |
|
|
|
|
|
|
|
|
10.31 |
* |
|
Change of Control Letter Agreement dated
December 9, 2005 between QLT USA, Inc. and
Michael R. Duncan.
|
|
Exhibit 10.42 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2005. |
|
|
|
|
|
|
|
|
10.32 |
* |
|
Form of Stock Option Agreement for stock option
grants to senior employees and executive
officers.
|
|
Exhibit 10.43 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2006. |
|
|
|
|
|
|
|
|
10.33 |
* |
|
Employment Agreement dated May 31, 2006 between
QLT Inc. and Peter J. OCallaghan.
|
|
Exhibit 10.44 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2006. |
|
|
|
|
|
|
|
|
10.34 |
* |
|
Change of Control Agreement dated May 31, 2006
between QLT Inc. and Peter J. OCallaghan.
|
|
Exhibit 10.45 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2006. |
|
|
|
|
|
|
|
|
10.35 |
|
|
Settlement, Release and Patent License dated
February 9, 2007 by and among Takeda
Pharmaceutical Company Limited, Wako Pure
Chemical Industries, Ltd., TAP Pharmaceutical
Products Inc., Abbott Laboratories, Limited
Laboratories Abbott, Limited, QLT USA, Inc., and
Sanofi-Synthelabo, Inc.
|
|
Exhibit 10.35 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006. |
111
|
|
|
|
|
|
|
Exhibit |
|
Description |
|
Location |
|
|
|
|
|
|
|
|
10.36 |
|
|
Eligard Manufacturing and Supply Agreement,
dated December 22, 2006, between Tolmar, Inc.
and QLT USA, Inc. (1)
|
|
Exhibit 10.36 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006. |
|
|
|
|
|
|
|
|
10.37 |
|
|
Amended and Restated Contribution Agreement,
dated February 9, 2007, between
Sanofi-Synthelabo, Inc. and QLT USA, Inc. (1)
|
|
Exhibit 10.37 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2006. |
|
|
|
|
|
|
|
|
10.38 |
|
|
Settlement Agreement dated March 2, 2007, by and
between the Company and Massachusetts Eye and
Ear Infirmary.(1)
|
|
Exhibit 10.4 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
March 31, 2007. |
|
|
|
|
|
|
|
|
10.39 |
|
|
Separation Letter Agreement with Alain Curaudeau.
|
|
Exhibit 10.1 to the
Companys Current
Report on Form 8-K
dated January 18, 2008
and filed with the
Commission on January
25, 2008. |
|
|
|
|
|
|
|
|
10.40 |
|
|
Amended and Restated License Agreement, dated
December 14, 2007 between QLT Inc. and the
University of British Columbia.(1)
|
|
Exhibit 10.40 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2007. |
|
|
|
|
|
|
|
|
10.41 |
* |
|
2007 Cash Incentive Bonus Plan for Executive
Officers.
|
|
Item 1.01 of the
Companys Current
Report on Form 8-K
dated February 27,
2007 and filed with
the Commission on
March 3, 2007. |
|
|
|
|
|
|
|
|
10.42 |
* |
|
2007 Cash Incentive Compensation Structure for
Executive Officers.
|
|
Item 5.02 of the
Companys Current
Report on Form 8-K
dated May 17, 2007 and
filed with the
Commission on May 23,
2007. |
|
|
|
|
|
|
|
|
10.43 |
* |
|
2007 Base Salary for Chief Executive Officer.
|
|
Item 5.02 of the
Companys Current
Report on Form 8-K
dated April 16, 2007
and filed with the
Commission on April
20, 2007. |
|
|
|
|
|
|
|
|
10.44 |
|
|
QLT Guarantee dated June 6, 2008.
|
|
Exhibit 10.44 to the
Companys Current
Report on Form 8-K
dated June 6, 2008 and
filed with the
Commission on June 10,
2008. |
|
|
|
|
|
|
|
|
10.45 |
|
|
Sale and Purchase Agreement dated May 15, 2008
by and among QLT Inc., 560677 B.C. Ltd., 630321
B.C. Ltd. and Discovery Parks Holdings Inc. as
amended by each of: an Amending Agreement dated
July 4, 2008 by and among QLT Inc., 560677 B.C.
Ltd., 630321 B.C. Ltd. and Discovery Parks
Holdings Inc., an Amended and Restated Sale and
Purchase Agreement dated July 11, 2008 by and
among QLT Inc., 560677 B.C. Ltd., 630321 B.C.
Ltd. and Discovery Parks Holdings Inc., a Third
Amending Agreement dated July 16, 2008 by and
among QLT Inc., 560677 B.C. Ltd., 630321 B.C.
Ltd. and Discovery Parks Holdings Inc., a Fourth
Amending Agreement dated July 18, 2008 by and
among QLT Inc., 560677 B.C. Ltd., 630321 B.C.
Ltd. and Discovery Parks Holdings Inc., a Fifth
Amending Agreement dated July 23, 2008 by and
among QLT Inc., 560677 B.C. Ltd., 630321 B.C.
Ltd. and Discovery Parks Holdings Inc., a Sixth
Amending Agreement dated July 25, 2008 by and
among QLT Inc., 560677 B.C. Ltd., 630321 B.C.
Ltd. and Discovery Parks Holdings Inc., a Second
Amended and Restated Sale and Purchase Agreement
dated July 30, 2008 by and among QLT Inc.,
560677 B.C. Ltd., 630321 B.C. Ltd. and Discovery
Parks Holdings Inc. and an Eighth Amending
Agreement dated August 7, 2008 by and among QLT
Inc., 560677 B.C. Ltd., 630321 B.C. Ltd. and
Discovery Parks Holdings Ltd.
|
|
Exhibit 10.45 to the
Companys Quarterly
Report on Form 10-Q
for the quarter ended
June 30, 2008. |
112
|
|
|
|
|
|
|
Exhibit |
|
Description |
|
Location |
|
|
|
|
|
|
|
|
10.46 |
|
|
License Agreement dated August 25, 2008 by and
between QLT USA, Inc. and Reckitt Benckiser
Pharmaceuticals Inc. (1)
|
|
Exhibit 10.1 to the
Companys Amended
Current Report on Form
8-K/A dated August 25,
2008 and filed with
the Commission on
September 3, 2008. |
|
|
|
|
|
|
|
|
10.47 |
|
|
Amendment No. 8 to BPD-MA Presome Supply
Agreement dated December 29, 2008 by and between
QLT Inc. and Nippon Fine Chemical Co., Ltd. (1)
|
|
Exhibit 10.47 to the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2008. |
|
|
|
|
|
|
|
|
10.48 |
|
|
Amended and Restated PDT Product Development,
Manufacturing and Distribution Agreement dated
October 16, 2009 between QLT Inc. and Novartis
Pharma AG.
|
|
Exhibit the Companys
Current Report on Form
8-K dated October 19,
2009. |
|
|
|
|
|
|
|
|
10.49 |
* |
|
2000 QLT Incentive Stock Option Plan (as amended
and restated effective May 5, 2009).
|
|
Exhibit to the
Companys Registration
Statement on Form S-8
filed on October 14,
2009. |
|
|
|
|
|
|
|
|
11 |
|
|
Statement re: computation of per share earnings.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
21 |
|
|
Subsidiaries of QLT Inc.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
23 |
|
|
Consent of Deloitte & Touche LLP.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
31.1 |
|
|
Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: Robert L.
Butchofsky, President and Chief Executive
Officer.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
31.2 |
|
|
Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: Cameron R. Nelson,
Vice President, Finance, and Chief Financial
Officer.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002: Robert L.
Butchofsky, President and Chief Executive
Officer.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
32.2 |
|
|
Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002: Cameron R. Nelson,
Vice President, Finance, and Chief Financial
Officer.
|
|
Filed herewith. |
|
|
|
Notes: |
|
* |
|
Denotes executive compensation plans or arrangements. |
|
(1) |
|
Certain portions of this exhibit have been omitted and filed separately with the Commission
pursuant to a grant of confidential treatment under Rule 24b-2 promulgated under the
Securities Exchange Act of 1934, as amended. |
113